MNI POLICY: BOC's Macklem Faces Range of Other Challenges

By Greg Quinn

     OTTAWA (MNI) - Beyond the core questions of managing QE and a near-zero

interest rate amid the Covid-19 pandemic, Bank of Canada Governor Tiff Macklem

faces a range of other issues as he begins a seven-year term this month, based

on interviews with ex-officials and other experts:

     --Communicating with markets: Former Governor Stephen Poloz sometimes made

waves with his view that every rate announcement is a "clean sheet" that didn't

need to repeat phrases from the last one. He also rejected "code words" or

direct forward guidance, something that may become more useful once markets and

the economy stabilize. But former governors Mark Carney and David Dodge embraced

a "conditional commitment" on rates or gave markets verbal clues on rates,

practices Macklem could revive. Reversing a longstanding BOC practice of not

publishing meeting minutes or votes would be another way to offer more

transparency.

     --Debt buildup: The BOC has discussed the idea of giving more weight to

financial imbalances, such as record household debts and overstretched housing

markets, in its inflation targeting. Companies worldwide may also face a rush of

bond downgrades to junk status that could trigger a selloff by pension funds.

The BOC has said it can adjust to imbalances by using existing "flexibility" in

how long it takes to return to 2% inflation. Next year's mandate renewal could

make that tradeoff more explicit. 

     --Central bank digital currency: The BOC is preparing a framework to issue

a digital currency in case the government decides it wants one. That could

happen if cash becomes so little used it imperils monetary policy or a private

currency like Facebook's Libra threatens economic sovereignty. Poloz told

reporters before he left he thinks cash will be around for a long time. 

     --Climate change: Macklem when appointed called global warming "a major

force that is going to be affecting the economy." The BOC is seeking to

introduce climate risks including the cost of physical damage from extreme

weather and financial assets stranded in a shift to cleaner energy, but Macklem

could go much further. 

     --Canadian dollar: The value of the currency has faded to the background in

recent years as a threat to the economy, a break from past volatility and record

highs and lows that roiled exporters. With global commodity exports like oil and

minerals remaining a staple of the economy, Macklem may be faced with the need

to consider the dollar again through his seven-year mandate and how it could

throw off his 2% inflation goal. 

     --Diversity: The BOC has never had a francophone, female or visible

minority Governor since its beginning in 1935. The lone woman on the

rate-setting panel, Senior Deputy Governor Carolyn Wilkins, was seen as a star

candidate to take the top job before Macklem was appointed, and her term ends in

less than a year. Macklem may seek to find a more diverse mix for the BOC's most

public officials.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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