A Canadian senator is looking to “modernize” the Bank of Canada’s mandate, including appointing “external” people to a permanent committee to discuss and set interest rates.
The changes put forward by Sen. Diane Bellemare’s Bill S-275 seek to amend the Bank of Canada Act and address what the bill calls “the impression among some Canadians that there is a democratic deficit in monetary policy management.”
It would establish a permanent committee of nine members chaired by the bank’s governor that would be responsible for setting Canada’s monetary policy. And, under the bill, the government and Bank must enter into an agreement at least once every five years to renew its monetary policy framework.
Central banks control monetary policy, which according to the International Monetary Fund “generally boils down to adjusting the supply of money in the economy to achieve some combination of inflation and output stabilization.”
Fiscal policy, which governments control, is “the use of government spending and taxation to influence the economy.”
Bellemare’s bill is the latest case of politicians weighing in on the Bank of Canada’s interest rate and policy decisions and comes amid intense scrutiny of the bank’s decisions.
The committee itself would be made up of the bank’s governor and deputy governor, a deputy governor responsible for economic analysis, and six external members to be appointed by the deputy minister of finance.
Deputy ministers are their respective department’s top bureaucrat and “act under the management and direction of their Minister,” according the guidance for deputy ministers issued by the Privy Council Office.
Bellemare’s bill proposes restrictions on who can be on the board including they cannot be a sitting senator, MP or member of a provincial or territorial legislature or employed in the public service or federal public administration.
Anyone not “recognized in their field” for open-economy macroeconomics, the financial system, the labour market, supply chains and risk management would not be eligible, the bill says.
Under the bill, the committee would not only have discussions about setting the policy rate, but also set it by a vote and meet at least eight times per year to do so.
Before this month’s interest rate decision, three premiers wrote to the bank asking the institution not to raise interest rates any higher to prevent further pain for Canadians. And following the announcement, Deputy Prime Minister and Finance Minister Chrystia Freeland called the decision a “welcome relief.”
The Bank of Canada is an independent institution tasked with setting monetary policy for the country; it receives its inflation-targeting mandate from the federal government but sets interest rates and otherwise operates autonomously.
Some in Canada’s economic landscape criticized the move by the premiers and Freeland’s comments, arguing it could undermine global opinions of the Canadian financial system if observers believed the central bank was subject to political interference.
Bellemare’s bill also lays out that the permanent committee would need to assess the effectiveness of its monetary policy, and within 30 days, prepare a summary of the assessment and “cause it to be tabled in each House of Parliament.”
The Canadian senator stressed in a statement that she recognized the importance of the bank remaining independent, but said with inflation being a “more complex issue” than in the previous century, the institution needs modernization.
“The bank is not above Parliament. It must explain how its policy reduces inflation and at what cost,” she said.
If the bill were to pass, Bellemare proposes that its amendments would be reviewed every five years by a committee of the Senate, of the House of Commons or one made up of members of both chambers would be established to review the Bank of Canada Act.
The bill passed first reading in the Senate on Wednesday but will still need to make it through two more readings plus a committee study and report stage before it could move to the House of Commons for review and a chance to become law.
— with files from Craig Lord, Global News
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