As the Bank of Canada tries to reign in red hot inflation, the central bank is engaging in another fight: one against misinformation.
In recent weeks, the central bank has been using social media to engage the public on the economy, explaining how inflation works and what itB次元官网网址檚 doing to bring inflation back to its two per cent target. However, in its most recent Twitter thread, the bank went beyond explaining economics and took direct aim at a common attack levied against its policy decisions during the pandemic.
B次元官网网址�#YouAskedUs if we printed cash to finance the federal govB次元官网网址檛. We didnB次元官网网址檛,B次元官网网址� the Bank of Canada tweeted on Aug. 25, followed by a series of tweets refuting the claim.
While central bank officials normally hold speeches and other events to communicate their thinking and to set expectations, Laval University economics professor Stephen Gordon says its audience has traditionally been smaller than it is today.
B次元官网网址淭he only people who pay attention are insiders and market experts. And thatB次元官网网址檚 usually the only people that they have to talk to,B次元官网网址� Gordon said.
TodayB次元官网网址檚 high inflation environment and the politicization of the central bank has led to a wider audience, with more Canadians concerned about rising interest rates and the high cost of living. Alongside this heightened interest has also come a level of distrust of the Bank of CanadaB次元官网网址檚 operations and a misperception that it printed money during the pandemic.
We did 饾惂饾惃饾惌 print cash to pay for the .
B次元官网网址� Bank of Canada (@bankofcanada)
We bought the bonds with settlement balances B次元官网网址� a kind of central bank reserve B次元官网网址� not with bank notes.
WhatB次元官网网址檚 the difference?
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Conservative leadership front-runner Pierre Poilievre has been a loud critic of the Bank of Canada, vowing to fire Governor Tiff Macklem if he becomes prime minister. Poilievre has not explained how he plans to fire Macklem given the Bank of Canada Act does not provide the federal government with that power.
HeB次元官网网址檚 also repeatedly claimed that the central bank printed money to finance federal spending and therefore caused inflation.
However, the Bank of Canada and economists say thatB次元官网网址檚 not what happened.
B次元官网网址淭hereB次元官网网址檚 always been this expression of the bank printing money whenever they engage in these kinds of policies, but itB次元官网网址檚 not actually what happens,B次元官网网址� said Jeremy Kronick, the director of Monetary and Financial Services Research at the C.D. Howe Institute.
The policy Kronick refers to is quantitative easing, a measure the Bank of Canada attempted to explain in a series of tweets.
B次元官网网址淲e bought existing govB次元官网网址檛 bonds from banks on the open market. Why? This helped unblock frozen markets at the start of the pandemic. It let households, companies and governments access funding when they really needed it,B次元官网网址� one of the tweets said.
B次元官网网址淲e did not print cash to pay for the bonds,B次元官网网址� the thread went on to say.
Sometimes referred to as QE, quantitative easing is a relatively new tool used to keep money flowing when interest rates are already hovering around zero and canB次元官网网址檛 be cut further. It garnered worldwide attention when it was used by the U.S. Federal Reserve in the aftermath of the 2008 financial crisis.
The Bank of Canada used this policy tool for the first time when the pandemic hit to fight off the risk of deflation. It bought government bonds from financial institutions using settlement balances, or reserves, that it deposited into the accounts of financial institutions and paid interest on. As the bank stated, these reserves are not the same as cash.
B次元官网网址淭hat purchase of the bond lowers the interest rate on that bond and therefore lowers other interest rates, which makes it cheaper to borrow for you and me. So thatB次元官网网址檚 really where QE has its impact, not so much from the exchange,B次元官网网址� Kronick said.
The Bank of Canada began the process of quantitative tightening, where it sells these bonds back to financial institutions, in April of this year.
While the Bank of CanadaB次元官网网址檚 motivation to speak directly with Canadians and justify its policies is understandable, Gordon says heB次元官网网址檚 unsure how effective its efforts are given the central bank doesnB次元官网网址檛 have much experience in this realm.
B次元官网网址淭hey donB次元官网网址檛 have nowhere near the media arsenal of the people who are trying to promote the wrong agenda. So, theyB次元官网网址檙e in some sense massively outgunned,B次元官网网址� he said.
A recent Angus Reid survey found 46 per cent of Canadians trust the Bank of Canada to fulfil its mandate, while 41 per cent said they donB次元官网网址檛. The survey found distrust was higher among people who had voted for the Conservatives or the Peoples Party of Canada.
The online poll surveyed 5,032 Canadian adults and was conducted between June 7 and 13. It cannot be assigned a margin of error because according to the polling industryB次元官网网址檚 generally accepted standards, online surveys do not randomly sample the population.
Looking ahead, the Bank of Canada plans to expand its educational programming on the economy and the bankB次元官网网址檚 role.
Kronick meanwhile says what will ultimately help foster trust in the Bank of Canada is bringing inflation back down to target.
B次元官网网址淲hat matters and what will regain that trust is the bank getting inflation back under control.B次元官网网址�
Nojoud Al Mallees, The Canadian Press
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