Opinion: Bank of Canada deputy governor search marks historic turning point in central bank decision-making

The Bank of Canada in Ottawa on July 12.Sean Kilpatrick/The Canadian Press

The Bank of Canada is looking for part-time employees. And that’s a big problem.

On a lazy afternoon in late August, the central bank issued A press release announcing the launch of its search for a new Deputy Governor. On the surface, it wasn’t a big surprise; Veteran MP Tim Lane announced his retirement earlier this summer, effective September 22, creating a vacancy. An announcement about finding his replacement would normally just be a bit of standard housekeeping.

But that help-seeking announcement came with a twist — making it the most notable deputy governor search in decades.

The bank has decreed that this new deputy governor – one of the six people who form its board of directors, which sets the country’s monetary policy – ​​must be a foreigner. Someone from a professional background other than the central bank.

Additionally, the newcomer will not be burdened with the management duties of other deputy governors, who each oversee various departments within the bank. (Hence the part-time status.) This “non-executive” deputy governor, as the bank has called him, will focus his attention strictly on the core functions of the board of governors: helping to set monetary policy (mainly, interest rates) in order to control inflation and promote the stability of the financial system.

This non-executive outsider will be limited to a two-year term, with an option for both parties to extend it to three. Until now, deputy governors had no term limits; Mr. Lane, who is retiring, has been in office for nearly 14 years. (The governor and senior deputy governor serve seven-year terms and can seek reappointment for a second term.)

Why should all of this matter? Because coming out of one of the most tumultuous periods in central banking history – a period in which the bank’s monetary policy decisions and its grip on inflation were seriously challenged question – the Bank of Canada decided it wanted to add a new kind of voice to its decision-making. One that comes from outside the bank’s echo chamber.

This is the first major change to the composition of the board since its creation by then-Governor Gordon Thiessen in 1994.

Mr Thiessen’s idea was to depersonalize monetary policy away from the governor, after his predecessor John Crow became a controversial figure who clashed with the government and was almost escorted to the door at the end of his mandate. While by law the governor has the final say in setting policy, the board was meant to create a collaborative process in which, in practice, decisions are made by consensus within the board. The central bank operated this way for the next nearly 30 years.

The bank did not say specifically what prompted this decision to inject something new and different into this structure. (When we asked, a bank spokesperson pointed us to Governor Tiff Macklem’s statement in the press release: “This change provides an opportunity to both bring fresh and diverse perspectives into the bank’s consensus-based political decision-making framework and to ensure the bank’s management team has a balanced, streamlined and effective distribution of management responsibilities.”)

But it’s easy to imagine the bank’s senior officials looking carefully in the mirror regarding its policy decisions since the start of the pandemic – particularly over the past year, when they have unquestionably misinterpreted the nature , the strength and resistance of inflationary forces. . Monetary policy makers, both within the Bank of Canada and in the central banking world, were guilty of groupthink that confirmed their own beliefs and biases. This may have contributed to slow recognition of the problem and, at first, delayed response once the severity of the threat was considered.

The Bank of Canada’s new position appears to bear some similarities to the model of the Bank of England, whose nine-member monetary policy board includes four “external” appointees for three-year terms (the bank deputies serve 10-year terms). The New Zealand central bank also has several external members on its policy committee.

One wonders if these outside voices have made a meaningful difference to the recent course of politics, which has been no less challenging for these two central banks. Britain’s inflation rate topped 10% in July and was already above 5% before the Bank of England started raising rates last December. In New Zealand, the Official Opposition in Parliament has called for an independent inquiry into the bank’s actions in the COVID-19 crisis and its response to inflation.

And frankly, looking at the qualifications listed in the official Bank of Canada job offer, it’s hard to see how the bank will end up with someone with a radically different background from the economists and researchers already at the central bank. The position states that the successful candidate “should possess the knowledge, skills, experience and understanding of central bank economics necessary to contribute to monetary policy decisions.”

It’s not quite the same as being at the central bank, but it does suggest someone in fairly close orbit.

Still, the bank’s press release says it will seek “outstanding candidates from a wide range of disciplines and backgrounds.” That suggests some hope that the bank is serious about unearthing a new deputy governor who thinks outside the central bank box. Perhaps there is an innovative business leader, researcher, or public policy advocate who can provide the board with a fresh perspective to apply to its monetary policy.

Or a clever columnist who makes his life as the quarterback of Bank of Canada decisions. Hey, now there’s a thought.

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