MNI INTERVIEW: Senator's BOC Bill Seeks Rigor Not Rebuke

The senator seeking the biggest overhaul of the Bank of Canada’s legal framework in decades told MNI that her proposals for external policy committee members and a dual mandate seek to align with global practices and improve transparency rather than serve as a rebuke of the current inflation fight.

Diane Bellemare says revamping the six-member Governing Council would better connect decision-making to the public and make the Bank operate more like peers in the UK and Australia. While Canada recently gave the Bank scope to pursue full employment when the single goal of 2% inflation is being met, Bellemare said formalizing a dual mandate like the Fed’s would also ease public concerns about keeping policy too tight.

“My bill is to have a more balanced approach between independence of the Bank and accountability to the population,” said Bellemare, who has a doctoral economics degree from McGill University and taught at the University of Quebec at Montreal for decades before being appointed to the Senate in 2012.

"They should have a monetary policy committee with external people. That would be a safeguard because the governor lives in Ottawa, the country is big, and monetary policy affects every institution,” she said in an interview after a committee hearing.

MORE RIGOROUS APPROACH

Some of the Bank's decision making escapes parliamentary oversight because the 2% inflation mandate doesn't come directly from federal law, she said, but from an agreement with the government set every five years. “Where I think the Bank needs a legal framework is maybe to have a more rigorous approach to their decision making, to take into account the costs and benefits of their decisions," she said. “This agreement, it doesn’t come in front of Parliament, it doesn’t have any legal framework behind it.”

The Bank of Canada Act dates back to the Great Depression of the 1930s and specifies the Governor alone is responsible for monetary policy, though there are provisions for deputies to be involved in discussions and officials say they work by consensus. Bellemare's bill calls for a policy group including the Governor, two deputies and six external members. While the bill could create an awkward situation where outside members are seen binding the Governor's hands, Bellemare suggested she's open to lawmakers reworking the policymaking group's composition.

Canadian Senators are appointed and bills introduced in that chamber have a more difficult time being passed into law, especially ones like Bellemare's that don’t have the full backing of the elected government in the House of Commons. Finance Minister Chrystia Freeland has said monetary independence is vital and recently proposed only a technical fix to the Bank's legislation allowing it to account for losses from pandemic bond purchase programs.

Compared with G7 peers the BOC has had notable success guiding the economy through the 2008 global financial crisis and in keeping inflation closer to target since adopting price goals in the 1990s. Other nations like Australia have made changes in central bank operations in recent years and the Fed also revised its inflation goals, though in some ways to make them more like Canada including regular policy framework reviews.

TIGHT POLICY IS DETRIMENTAL

The Bank has still run into recent political trouble with inflation peaking around 8% last June and high interest rates hitting many mortgage borrowers. Conservative Leader Pierre Poilievre -- who polls suggest would win an election today -- has made firing Governor Tiff Macklem a key pledge after blaming him for underwriting reckless budget deficits and high inflation. (See: MNI INTERVIEW: BOC Seen On Hold Until Mid-2024 Cut- Stillo)

Bellemare, appointed by former Conservative Prime Minister Stephen Harper, said her law isn’t a rebuke of the Bank. “I don’t want to get into this debate, because that’s not my point,” she said.