Coyne Affair 2.0
It was a bold move by the federal Finance Minister Jim Flaherty to pass over Tiff Macklem for the top position at the Bank of Canada, and its implications will tarnish the role and independence of our central bank in the years to come. This is to no discredit to the Governor appointee as Stephen Poloz’s resume clearly makes him a worthwhile candidate, but the breadth of experience that would have influenced Mr. Macklem’s leadership would have likely served to be of greater benefit, and promoting from within the bank itself would have been worth their while.
Although it is not the first time Finance Minister Flaherty has taken the lead in a appointing the Governor of the bank, he will wear the entirety of this appointment because of how much of a shock it was. For many within Canada’s financial institutions and academic space, Mr. Macklem was considered the front runner. This was purely attributed to his experience as Deputy Governor, which had him heavily involved in the banks course of policy through the financial crises. And the central bank’s ability to ensure the liquidity of our financial system gave more than Mr. Carney a sound reputation in the realm of international finance as the entire governing council of the bank was held in high regard.
It seems surprising, given that Mr. Carney did not even complete his full term at the bank that our federal government would imply by this maneuver for a switch in policy direction. Mr. Poloz’s experience stems from his time at Export Development Canada, which is an agency that provides financing for foreign companies that import Canadian goods. There is no question that the appointee’s understanding of export markets is very topical considering the challenge faced by Canadian firms in what has been a sluggish global economy, but considering that the central bank’s mandate is for stable inflation of two percent, it is price level stability that takes precedent to the hindrance of a strengthening currency on exports.
All over the western world we are seeing the actions of central banks influenced by their respective federal governments. This is either in a direct form like in Japan where just recently, the newly elected Prime Minister Abe altered his central bank’s mandate, or indirectly in countries like the US, Eurozone, or Great Britain where central bank stimulus makes up for the shortfall of ineffective and ill-timed fiscal policy. Nonetheless, the freedom and independence on which central banks once operated seems to be days of the past.
This is sad for Canada given the recognition our financial system received following an ultimate collapse elsewhere in the world, and this is not because I think Stephen Poloz’s will be a disappointment as governor. In fact, given his experience he could serve the role just as well as his predecessor, for the job he is assuming is very structured and will not provide him with much opportunity to venture in changes to monetary policy. However, this apparent realization that even now in Canada our central bank has lost their independence given an appointment that seems more political than based on merit puts the Harper government in the same boat as the Diefenbaker camp following the Coyne affair.