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Decentralized Democracy

House Hansard - 75

44th Parl. 1st Sess.
May 19, 2022 10:00AM
Context: House Hansard - 75 - May/19/22
Mr. Gabriel Ste-Marie (Joliette, BQ)
Madam Speaker, I would like to ask my colleague the question once again, but I will make it a little clearer. When the top candidate in the Conservative Party leadership race stated that he would fire the current Governor of the Bank of Canada if he becomes prime minister, the member for Abbotsford criticized him and stated that such a statement tarnished the credibility of the party on economic issues. Does my colleague agree with what the member for Abbotsford said?
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Context: House Hansard - 75 - May/19/22
Mr. Gabriel Ste-Marie (Joliette, BQ)
Madam Speaker, accountability is already enshrined in the Bank of Canada Act. This act requires that once a year, two independent firms are to audit the affairs of the bank simultaneously. The bank is the only federal Crown corporation subject to this requirement. The act also gives the Minister of Finance the authority to enlarge or extend the scope of the audit and to request special audits and reports. Contrary to what the bill might suggest, the auditor general already has the authority to exercise an oversight role in certain areas of the bank's business functions. Specifically, she can review and audit the bank's operations and records related to its roles as the government's fiscal agent, advisor on public debt management, and manager of the exchange fund account. The Bank of Canada Act also makes it clear that in the event that there is a difference of opinion between the Minister of Finance and the Governor of the Bank of Canada on monetary policy, the minister may, after consultation with the governor and with the approval of the Governor in Council, give to the governor a written directive that shall be laid before Parliament. The governor and deputy governor are regularly called to testify before committees of the House of Commons and the other place, including the Standing Committee on Finance, to be held accountable. I commend them for their willingness to appear and their transparency. I also thank them for systematically answering my questions in impeccable French. In addition, there is also an Audit and Finance Committee, which has the mandate to review the bank's annual and interim financial statements; approve interim financial statements; make a recommendation to the board of directors with respect to the approval of the annual financial statements, as appropriate; oversee and ensure that the external and internal audit functions are carried out in an appropriate manner; review the adequacy of the bank’s risk management, internal control and governance framework with respect to financial reporting; and oversee the bank’s financial management, including the medium-term financial plan, the annual budget and expenditure reporting. This bill is an expression of a philosophy and a strategy that should worry us, an attempt to cast doubt on the bank and undermine public confidence in this independent institution. That is exactly what we saw when the bill's sponsor was his party's leader and during the last election campaign. This strategy is still a factor in their leadership race. The Bank of Canada is a complex institution, and it is difficult for the general public to understand. It just might be the perfect victim for politicians seeking a scapegoat for economic ups and downs. The current Conservative Party leadership hopeful openly attacks the Bank of Canada and has even promised to fire the bank's current governor. This same technique has already been used by none other than Donald Trump south of the border. Firing the governor of the central bank just because the prime minister does not agree with the monetary policy could have a devastating impact on our economy, its stability and its attractiveness to investors. It would put us on par with banana republics where financial and monetary crises happen all the time. It is of course perfectly appropriate and healthy to be able to criticize the work of a central bank and its governor. We are seeing this now. Economists have said that central bankers waited too long before raising interest rates. The governor has also been criticized for being slow to recognize that inflation was not transitory and that monetary policy tightening should have started well before 2022. The Bank of Canada has recognized some of its own errors. In a speech given in Toronto on May 3, the deputy governor focused on the importance of maintaining public confidence in the central bank. She said the following: So we are acutely aware that, with some of the extraordinary actions we have taken during the pandemic and with inflation well above our target, some people are questioning that trust. To bring down inflation, the bank's current policy calls for a sharp rise in interest rates, followed by an end to the rollover of government bond assets held by the institution. Once again, criticizing the central bank and its management of inflation is legitimate, but we must also take the time to explain the multiple causes of these price increases, which is a global phenomenon. The rhetoric that tends to undermine public confidence in the Bank of Canada is beyond worrisome. It can have a real impact on the economy, and this bill seems to serve that rhetoric. The Bank of Canada is a public entity separate from both the banking sector and the political process, let us not forget. Its fundamental responsibility is to guide the economy in the long-term best interests of the public. The bank was created in 1934. The Bank of Canada Act established the bank as a Crown corporation with special status and considerable independence to conduct its business. The act sets out the bank's business and powers as they relate to its core responsibilities of monetary policy, the financial system, currency, funds management and, more recently, retail payments supervision. The act also provides for the operational independence the bank needs to carry out its activities and meet its responsibilities, free from political influence. In other words, the act dictates what the bank does, but not how it does it. Over the years, the bank has made major changes to how it achieves its mandate. The most significant was in 1991, when the government and the bank reached the country's first inflation-targeting agreement. As its name indicates, it is a sort of contract between the bank and the government that establishes an inflation-control target but confers on the bank the authority to decide how it will achieve this target. The agreement has been renewed on a regular basis, most recently in 2021, following consultations. From the signing of the first agreement 30 years ago to the most recent agreement, the inflation rate was kept to almost exactly 2% on average. The bank is working to return to that level of price increases while ensuring the economy's stability. I will repeat that it is facing disruptions at a global level, and we are confident it will succeed. In closing, I would like to remind members that the bank has a board of directors composed of the governor, the senior deputy governor and 12 independent directors. The board of directors does not have a say in monetary policy decisions, which fall to the Governing Council, but it does have oversight of the bank's activities and finances. Its independent directors appoint the governor and the senior deputy governor, with the approval of the Governor in Council. The bank also enjoys financial independence. The expenditures of the bank are financed by its own activities, and it therefore does not rely on public funding. Its budget is approved by the board of directors.
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