Bank of Canada rejects claim it ‘printed money’

“#YouAskWeAsked if we printed money to fund the state. Not at all,” the Bank of Canada wrote on August 25, adding a series of messages refuting the claim. (Photo: 123RF)

Ottawa — As the Bank of Canada tries to rein in high inflation, it’s also engaged in another fight: against misinformation.

Over the past few weeks, the central bank has used social media to talk to the general public about certain aspects of the economy, explaining how inflation works and the steps it is taking to try to bring it back to its target of 2.0%. However, in its most recent remarks on Twitter, the bank went beyond simple economic explanations to directly target an oft-heard attack on its decisions during the pandemic.

“#YouAskWeAsked if we printed money to fund the state. Not at all,” the Bank of Canada wrote on August 25, adding a series of messages refuting the claim.

While central bank officials normally hold speeches and other formal events to communicate their thinking and shape expectations, Laval University economics professor Stephen Gordon points out that his audience has traditionally been smaller. than it is today.

“The only people paying attention are market insiders and experts. And those are usually the only people they have to talk to,” Gordon explained.

But today’s high inflation environment and central bank politicization have broadened its audience, and more Canadians are now concerned about rising interest rates and rising costs of living. Along with this heightened interest, there is also a level of mistrust in the operations of the Bank of Canada and a misperception that it printed money during the pandemic.

Conservative Party leadership candidate Pierre Poilievre sharply criticized the Bank of Canada a few months ago, promising to fire Governor Tiff Macklem if he becomes prime minister. Mr. Poilievre did not explain how he intended to fire Mr. Macklem given that the Bank of Canada Act does not give that power to the federal government.

Mr. Poilievre also repeatedly claimed that the central bank printed money to fund federal spending and thus caused inflation.

However, the Bank of Canada and economists say that is not what happened.

“There’s always been this expression of the bank ‘printing money’ whenever it engages in these kinds of policies, but that’s not really what’s happening,” noted Jeremy Kronick. , director of monetary and financial services research at the CD Howe Institute.

A relatively new tool

The policy Kronick is referring to is quantitative easing, a move the Bank of Canada has attempted to explain in its series of Twitter posts.

“We bought existing government bonds from banks, on the open market. Why? To help unlock paralyzed markets at the start of the pandemic. And so that households, businesses and public administrations have access to financing,” the central bank wrote.

“We didn’t print money to buy the bonds,” she continued.

Quantitative easing is a relatively new tool, used to keep money flowing when interest rates are already hovering around zero and can no longer be reduced. It made headlines around the world when it was used by the United States Federal Reserve in the aftermath of the 2008 financial crisis.

The Bank of Canada first used this policy tool when the pandemic hit, to combat the risk of deflation. She purchased government bonds from financial institutions using settlement balances, which she deposited in the financial institutions’ accounts, and paid interest on them. As the bank explained, these settlement balances, “a kind of central bank reserve,” are not banknotes.

“This bond purchase lowers the bond’s interest rate, and thus other interest rates, making it cheaper for you and me to borrow. So that’s really where quantitative easing has its impact, not so much from trading,” Kronick said.

The Bank of Canada began the process of quantitative tightening, which sees bonds either sold back to financial institutions or mature without being replaced, in April 2022. The central bank chose the second option.

While the Bank of Canada’s motivation to speak directly to Canadians and justify its policies is understandable, Gordon is unsure of the effectiveness of its efforts, given that the central bank does not have much experience in this field.

“They are far from having the media arsenal of people trying to discredit them. So they’re kind of massively overwhelmed and it’s not a level playing field,” he said.

A recent Angus Reid poll found that 46% of Canadians trusted the Bank of Canada to fulfill its mandate, while 41% said the opposite. The survey found that distrust was higher among people who had voted for the Conservatives or the People’s Party of Canada.

The online poll surveyed 5,032 Canadian adults and was conducted between June 7 and June 13. It cannot be assigned a margin of error since, by generally accepted survey industry standards, online surveys do not randomly sample the population.

In the future, the Bank of Canada plans to expand its educational programs on the economy and the role of the central bank.

Mr. Kronick believes that what will ultimately help foster confidence in the Bank of Canada will be a return to the inflation target.

“What matters, and what will help regain that confidence, is that the bank regains control of inflation.”

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