A Canadian senator is seeking to “modernize” the mandate of the Bank of Canada, including by appointing “external” people to a standing committee to discuss and set interest rates.
The changes proposed by Senator Diane Bellemare’s Bill S-275 aim to amend the Bank of Canada Act and address what the bill calls “the impression among some Canadians that there is a deficit democratic in the management of monetary policy.
It would establish a nine-member standing committee chaired by the bank’s governor and responsible for setting Canada’s monetary policy. And, under the terms of the bill, the government and the Bank must enter into an agreement at least once every five years to renew their monetary policy framework.
Central banks control monetary policy, which, according to the International Monetary Fund, “generally boils down to adjusting the money supply in the economy to achieve a combination of inflation and stabilization of output.”
Fiscal policy, which governments control, is “the use of public spending and taxation to influence the economy.”
Bellemare’s bill is the latest case of politicians weighing in on interest rates and policy decisions at the Bank of Canada and comes amid increased 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 a**lysis and six external members appointed by the deputy finance minister.
Deputy ministers are the most senior public servants in their respective departments and “act under the direction and direction of their minister,” according to guidelines for deputy ministers published by the Privy Council Office.
Bellemare’s bill proposes restrictions on who can serve on the board, including as 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” in open economy macroeconomics, financial system, labor 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 vote and meet at least eight times a year to do so.
Before this month’s interest rate decision, three prime ministers wrote to the bank asking it not to raise interest rates further to avoid further suffering for Canadians. And after the announcement, Deputy Prime Minister and Minister of Finance Chrystia Freeland called the decision a “welcome relief.”
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The Bank of Canada is an independent institution responsible for defining the country’s monetary policy; it receives its inflation targeting mandate from the federal government, but sets interest rates and otherwise operates autonomously.
Some in the Canadian economic landscape criticized the prime ministers’ decision and Freeland’s comments, telling PKBNEWS it could shake global opinion on Canada’s financial system if observers believed the central bank was subject to political interference .
Bellemare’s bill also provides that the standing committee must evaluate the effectiveness of its monetary policy and, within 30 days, prepare a summary of the evaluation and “ensure that it is tabled before each house of Parliament “.
The Canadian senator stressed in a statement that she recognized the importance of the bank remaining independent, but said that with inflation a “more complex problem” than in the previous century, the institution needed to be modernized.
“The bank is not above Parliament. She must explain how her policy reduces inflation and at what cost,” she said.
If the bill were to pa*s, Bellemare proposes that its amendments be examined every five years by a committee of the Senate, the House of Commons or that a committee composed of members of both chambers be created to examine the Law on the Bank of Canada.
The bill pa*sed first reading in the Senate on Wednesday, but will still have to go through two more readings as well as a committee study and a reporting stage before it can be submitted to the House of Commons for consideration and have a chance to become a law.
— with files from Craig Lord, PKBNEWS
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