Colleagues, I rise today to speak at second reading of Senator Bellemare’s bill, Bill S-275, An Act to amend the Bank of Canada Act.

Our colleague is a seasoned progressive economist, and issues like labour and better co-operation among economic players have long been a passion for her, hence her interest in monetary policy.

In the current context, Bill S-275 certainly deserves to be studied in committee and debated in the Senate, as Canada’s monetary policy has an obvious impact on Canadians’ daily lives.

Bill S-275 is a laudable effort to update the Bank of Canada Act. The central bank’s mandate has not been reviewed since 2008. Its mandate, as defined in the Bank of Canada Act, is to “promote the economic and financial welfare of Canada.” However, in reality, the Bank of Canada’s real objective is to fight inflation at all costs and maintain a target of 2%. It is high time we reflected on the Bank of Canada’s one-dimensional mandate.

Parliament must not wait until the central bank’s methods become outdated before starting to consider all of this.

Last September, the governments of Ontario, British Columbia and Newfoundland and Labrador all asked the Bank of Canada to lower its key interest rate and pay more attention to the human costs of its monetary policy.

Fortunately, politicians are not in charge of setting the key interest rate. That would be a disaster. However, this collective plea from politicians reflects deep concerns among members of the public, who wonder whether they will be able to make their next mortgage payment or what rate they will get when their mortgage comes up for renewal.

In the bill’s preamble, Senator Bellemare mentions the impression that there is a democratic deficit in monetary policy management. I agree with her.

Many people believe that Canadian monetary policy is too inflexible. In a 2023 article published in La Presse, National Bank Financial Markets’ deputy chief economist Matthieu Arseneau and economist Alexandra Ducharme said that Canada has one of the strictest monetary policies in the G7 and that Canada’s GDP is one of the slowest growing. In fact, both economists suggested that the consecutive key interest rate hikes were premature, if not perilous for the economy.

In a speech to the Montreal Council on Foreign Relations just today, the Governor of the Bank of Canada, Tiff Macklem, defended his mandate and recent decisions by reiterating that low, stable inflation is fundamental for shared prosperity, but he added that monetary policy has some limitations and cannot solve structural issues such as housing affordability and long‑term economic growth.

Bill S-275 proposes major changes to the current Bank of Canada Act.

First of all, it advocates for the creation of a nine-member permanent committee, and the major new element is that six of its members would be recruited from outside the Bank of Canada, in order to bring new perspectives to this institution, where power is mainly concentrated in the hands of a single person, namely the governor. The new committee’s responsibilities would range from assessing Canada’s monetary policy to setting the policy rate, and each member would have one vote, which would be unprecedented.

Second, the bill adds two explicit objectives for Canadian monetary policy, whereas the Bank of Canada Act made no mention of any official objective until now.

In the bill, proposed section 14 adds achieving and maintaining full employment to the de facto objective of the Bank of Canada, which is to achieve and maintain stability in the general level of prices over the medium term.

Finally, Bill S-275 calls for more transparency to make it easier to understand the choices that are made by the Bank of Canada, including the publication every year of a cost-benefit analysis of the various scenarios contemplated for the policy rate and summaries of the discussions between the Bank of Canada’s committee and the Department of Finance. The International Monetary Fund encourages greater central bank transparency. We can hardly be against that.

Let’s take a look at these important changes.

According to Senator Bellemare, who is a trained economist, the Bank of Canada should not limit itself to curbing inflation, as it is currently doing. The preamble of the bill states that demographic shifts, the climate crisis, technological change and political uncertainty are minimally affected by traditional monetary policy. However, it is not feasible to make a long list of criteria that would overcomplicate the central bank’s decision‑making process. The senator chose to add the objective of achieving full employment, but other people that we talked to think that it is more important to include the objective of financial stability, a broader concept that encompasses both inflation and employment, as well as other considerations, such as asset bubbles and the redistributive impacts of monetary policy.

What Senator Bellemare is proposing is a dual mandate: The Bank of Canada should take into account both inflation and full employment when setting its policy rate. Professor Lilia Karnizova, a monetary policy expert from the University of Ottawa, is of the opinion that this dual mandate could make the Bank of Canada’s job harder.

Since the bank has only one tool with which it must achieve two different objectives, how will it decide which one to prioritize if there is a conflict?

Also, is it realistic to have six external members on a nine‑member committee?

One of the newer members of the Bank of Canada’s governing council is an external member, and he participates in the discussions. Nicolas Vincent was appointed to the council in March 2023. He is a full professor of economics at HEC Montréal and a researcher. However, this position is not enshrined in the Bank of Canada Act, which means that it can disappear at the whim of the leaders who happen to be in power.

There is something else: The council’s decisions are made by consensus, without a vote. Many people think that our central bank needs more diverse points of view and expertise, because almost all the members of the governing council have the same profile, with a PhD in economics. Where Bill S-275 may go too far is in giving the balance of power to six experts from outside the bank, something that has never been done before by other central banks anywhere in the world. I noted that Senator Bellemare said in this chamber on September 26 that she was open to reconsidering the balance.

Debates over central bank policy are not exclusive to Canada. In fact, Australia, the United States and the United Kingdom have all adopted a model that ensures greater transparency from their central banks, while retaining a flexible mandate that is not limited to price stability.

The U.K. model is definitely the one that is most relevant to us. First, Great Britain decreed that its central bank’s Monetary Policy Committee would be made up of five internal and four external members. The external members are appointed to ensure that the committee benefits from thinking and expertise from outside the Bank of England. Each committee member has different expertise in the field of economics and monetary policy. Prior to being appointed to the committee, the current external members were all expert economists in domains such as risk management and real estate. They weren’t all from academia. Committee members don’t represent individual groups or areas; they are independent.

Second, the committee is primarily responsible for keeping the inflation measure close to a government-set target, currently 2%. However, the Bank of England has a secondary objective, which the government reinforced in March 2013: to support growth and employment. Bank of England policy-makers will still have an inflation target, but it will be more flexible, because the Monetary Policy Committee will be able to make trade-offs to support the economy. This implies that the committee will be able to justify inflation above its medium-term target if they find that the wider economic context requires measures to stimulate growth.

In the United Kingdom, the central bank’s new approach did not go unnoticed, particularly as it relates to the recent rise in inflation. The Bank of England came under growing criticism from Conservative MPs who claim its dual mandate made the central bank too slow in tackling soaring prices.

That being said, some economists point out that in most other advanced economies, rather than looking to change the mandate, most central banks review their strategies to ensure they can fully comply with it. Many have expressed concern that any call to review the mandate by the government raises questions about the Bank of England’s independence.

Historically, in the United States, the U.S. Federal Reserve also had a dual mandate, specifically to maintain stable prices and achieve full employment. However, a 2010 law enacted in response to the 2007-08 financial crisis introduced a third official mandate for the Federal Reserve, that is, to participate in the Financial Stability Oversight Council. This council identifies financial risks and imposes new regulations as needed. The council also brings together the expertise of federal and state financial regulators to identify and assess emerging threats to U.S. financial stability. According to a New York Times article published last summer, “the [U.S.] economy appears to have reached a better balance,” thanks in particular to the Federal Reserve’s various mandates. Indeed, after the last crisis of this magnitude in the 1980s, many economists feared that a repeat of the draconian measures put in place at the time would be necessary. However, last summer, the unemployment rate fell to 3.5% in the United States. By comparison, Canada’s unemployment rate for the same period was 5.5%.

Of course, these are just a few examples. It won’t surprise you to hear that some people don’t agree. Arjun Jayadev, an economics professor at the University of Massachusetts, published an article in the journal Economics Letters in 2006 stating that the dual mandate does not explicitly define the relative importance of the objectives of price stability and full employment and that it introduces uncertainty when it comes to the short- and long-term actions of a central bank. What’s more, according to the IMF, if less attention is given to inflation and price stability, the public may react negatively because inflation has a direct effect on people’s lives and they may think that the central bank is not concerned enough about this issue.

In short, a real discussion on the Bank of Canada’s mandate is needed. Should we maintain a single objective of curbing inflation, or should we try to take into account other criteria, such as full employment, in establishing our monetary policy? Should we bring external perspectives into this institution and reduce the democratic deficit by requiring a strong minority of voting members to come from outside the bank? In my opinion, these are some of the questions that justify sending this bill to committee for study.

Thank you.

Honourable senators, this item stands adjourned in the name of the Honourable Senator Martin and, after my speech today, I seek leave for the item to remain adjourned in her name.