The Bank of Canada needs to adopt a digital currency: C.D. Howe Institute‘s Kronick
The front-runner in the race to lead Canada’s main opposition Conservative Party took aim at the Bank of Canada by pledging to increase parliamentary oversight of the central bank and halt its work on a digital currency.
Pierre Poilievre, a 42-year-old lawmaker and cryptocurrency enthusiast, blamed soaring consumer prices on Prime Minister Justin Trudeau’s deficits and “money printing” at a campaign event Thursday. He vowed to end inflation through spending curbs, mandating an independent audit of the central bank’s asset purchases during the pandemic and banning the monetary authority from issuing electronic money.
The Bank of Canada has long been a target of attack for Poilievre, who reiterated claims that its large-scale purchases of government debt made it into an “ATM” for the Liberal prime minister’s COVID-19 stimulus spending.
Trudeau’s “inflationary deficits, which have doubled the size of the debt, have caused the central bank to massively increase the money supply and give us 30-year highs in inflation. And everyday people are suffering as a result,” Poilievre said at a press conference in front of the Bank of Canada’s headquarters.
Conservatives will pick a new leader in September, though Trudeau’s recent power-sharing deal with a left-wing opposition party means the victor likely won’t get a chance to unseat the Liberals until 2025. The stridency of Poilievre’s rhetoric suggests there would be substantial friction between the government and Bank of Canada were he to ever become prime minister.
The central bank’s balance sheet peaked in March last year, when it hit $575 billion (US$449 billion), but it’s come down since as short-term securities matured. The Bank of Canada still holds about $420 billion in federal government bonds, which is up by about $340 billion since the start of the pandemic, and this week began the process of slowly shedding those assets.
Policymakers led by Governor Tiff Macklem argue they needed to buy up government debt through the pandemic to prevent a pick-up in interest rates that would have crippled the economy at a fragile time. Bank of Canada officials say the bond purchases weren’t meant to fund the government but to ensure a strong recovery.
At the press conference, Poilievre accused Macklem of failing to protect the purchasing power of Canadians. Asked whether he would keep Macklem as governor if he becomes prime minister, he said: “We’re going to change the leadership of the Government of Canada.”
“The reason why the bank printed $400 million and caused the inflation that’s harming our poor and depriving our young people of houses is to finance Justin Trudeau’s out-of-control deficits,” Poilievre said. “So the first thing we need to do is tackle those deficits.”
For several years, the Bank of Canada has also been analyzing which circumstances might lead Canada to decide to issue a digital currency. Deputy Governor Timothy Lane said last year the shift to online activities caused by the pandemic has accelerated those efforts.
Poilievre said issuing a digital currency would turn the Bank of Canada into a retail banker and eventually lead to even more runaway inflation. While he doesn’t want the central bank involved, he does want to normalize the use of electronic tokens and make Canada the “blockchain and crypto capital of the world.”
The legitimacy of cryptocurrencies also arose when Macklem and Senior Deputy Governor Carolyn Rogers testified before lawmakers earlier this week.
“If you look at over the last year or two, the volatility of cryptocurrencies has been higher than gasoline, the Canadian exchange rate and most commodities,” Rogers told the House of Commons finance committee on Monday. “So we don’t see cryptocurrencies as a way for Canadians to opt out of inflation or as a stable source or value.”
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