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MNI INTERVIEW: BOC Needs More Scrutiny Amid QE-Conservative MP
The Bank of Canada needs more oversight in an era where inflation has blown past target and major interventions in the economy led by massive bond purchases add to the problem, a Conservative lawmaker sponsoring legislation for wide-ranging reviews by the government's auditor told MNI.
Andrew Scheer's "Accountability Act" has just 397 words and would see the central bank brought under review by the federal Auditor General, replacing one of two private accounting firms the finance minister now appoints. Parliament would make better judgements about policy and greater transparency would improve the Bank's independence and prestige according to Scheer, the former Conservative Party leader and House of Commons speaker.
“There's information that when the Auditor General does audits, it's not just glasses on, calculators out, there's an information gathering exercise that then becomes made public," Scheer said. The Auditor General has real teeth in Canada, for example detailing improper federal advertising contracts that helped bring down a previous Liberal government.
Massive budget deficits from Justin Trudeau's Liberals implicitly pressured the Bank to juice the money supply and contributed to the fastest inflation in decades, Scheer said. While not directly criticizing central bank officials or advising any specific action from here, he said rapid inflation speaks for itself and warrants closer scrutiny.
“What was the justification for massively expanding the money supply in Canada, was it to keep inflation between one and three percent? Because that hasn't worked-- we're north of five and approaching six,” he said.
INFLATION AS STEALTH DEVALUATION
The private member's bill was introduced last month and this type of legislation is a tough sell in a minority Parliament where Scheer needs other parties to help it pass. The Liberals won't back the bill, Scheer said, and potential NDP support likely faded after their recent deal shielding the Liberals from non-confidence votes into 2025.
The legislation is still the most formal critique of a central bank that’s tested the patience of the Conservatives, one of two major parties to govern since the country’s founding in 1867. The Bank has also been criticized by Pierre Poilievre, who is backed by Scheer in the contest to be the next Conservative leader.
Canada's first-ever QE program grew the balance sheet from CAD120 billion to CAD575 billion, easing market fears after the global “dash for cash” early in the pandemic, but lowering yields by fewer basis points than a regular interest-rate cut. The Bank was heading towards owning half the stock of federal bonds before shifting to taper as the economy rebounded, and coincided with record budget deficits.
Other changes bear scrutiny according to Scheer. Those include extraordinary pandemic programs to buy small amounts of corporate and provincial government bonds and an expanded mandate to seek maximum employment when that can be consistent with the 2% inflation target.
Governor Tiff Macklem has said his decisions are made independently with the sole aim of keeping inflation on track, and strong action was needed during a calamitous recession.
The audit change “would strengthen their independence, because it would show the types of policies that help ensure that they stay out of politics,” Scheer said.
“Inflation is committing a certain type of fraud on Canadians: you work hard, you do your job, and you accept the agreed-upon wages for the job that you do," he said. "And then the government either directly or indirectly through the Bank devalues the money that you earned.”
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