Finance Committee on Nov. 26th, 2020

[Tiff Macklem]

As I said to the previous question, if you hold them to maturity, you're not going to realize that loss. I think what you need to keep in mind is that we don't run monetary policy to maximize our revenue. We run monetary policy to support the Canadian economy and bring inflation back to target.

[Pierre Poilievre, Conservative, Carleton, ON]

Right. But—

[Tiff Macklem]

That's the goal of monetary policy.

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

[Tiff Macklem]

That's what guides us in our decisions.

[Pierre Poilievre, Conservative, Carleton, ON]

You say that if you just keep holding on to these bonds until they mature, you won't have a capital gain or loss. That is of course true, but you'll have a loss every single year, as the interest rates you have to pay your depositors under normal circumstances rise above the amount you're collecting from the Government of Canada, which means that you would be in an annual loss position. As you admitted earlier on, that loss is borne by the Canadian taxpayer. If you're paying your depositors a higher rate of interest, as you would be under normal interest rate levels, then you're collecting from the Government of Canada on the treasuries and bonds you hold, you're losing money every year, and taxpayers are picking up the cost.

Explain to us why we should be comforted at all that you're holding all of this stuff when the losses you incur are all passed on to our taxpayers.

[Tiff Macklem]

The Bank of Canada normally makes money. If you look back, it's made money every year. Because we earn the seigniorage on the currency that we produce, and our expenses use up only a part of that seigniorage, we remit a cheque every quarter to the Government of Canada.

[The Chair, Liberal, Wayne Easter]

We are—

[Pierre Poilievre, Conservative, Carleton, ON]

Would that be the case if interest rates rose?

[Tiff Macklem]

You know, it's very difficult to provide forecasts against a whole series of hypotheticals here.

[The Chair, Liberal, Wayne Easter]

We'll end that round on the hypotheticals, for the moment, and we'll be back to it, Mr. Poilievre, in the next round.

We have Mr. Fragiskatos, who I think will be followed by Pierre again.

Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair.

Thank you, Governor Macklem and Senior Deputy Governor Wilkins, for being here today.

Governor, first of all, you talked about the need for citizens to be able to trust their institutions and those who run their institutions. We have some members of the opposition who have perpetuated a theory that has developed since the onset of the pandemic that suggests there is a plot under way to impose some sort of socialist world order onto the world in the interests of the elite—the elite being in the financial sector, the politicos of the world—who want to remake the world in some sort of socialist image, if I can put it that way.

That's what I understand about this conspiracy theory called the “great reset”. I can't believe I'm asking this question at a parliamentary committee, but trust is the essential glue of democracy. Is there any merit to this idea?

[Tiff Macklem]

Um, I'm not exactly sure what the question is—

[The Chair, Liberal, Wayne Easter]

I'll bet that's the first time you were ever asked that question, Mr. Macklem.

[Tiff Macklem]

Yes. As a rule, central bankers don't usually comment on conspiracy theories, but let me just underline that—

[Peter Fragiskatos, Liberal, London North Centre, ON]

This is the world we live in, unfortunately, and unfortunately, MPs in the opposition are perpetuating such theories.

[The Chair, Liberal, Wayne Easter]

Let Mr. Macklem answer the question, Peter.

[Tiff Macklem]

What I will say is that I entirely agree that trust is an essential ingredient. In many ways, the central bank is in the business of trust or confidence. Our job is to ensure that people can have confidence in the value of money; they can have confidence in the stability of the economy; they can have confidence in the stability of the financial system. Our system really relies on that trust or confidence.

As I said in my opening remarks, these types of appearances in front of parliamentarians are part of maintaining the trust of Canadians and being accountable to them.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I appreciate that, and I see no nefarious plot behind any policies that seek to deal with climate change, that seek to reduce inequalities or that aim to deal with other challenges over time.

Thank you to your entire team for the work you are doing.

I also want to ask you to be crystal clear about our finances. Are the debt and deficits facing Canada sustainable?

[Tiff Macklem]

Currently markets are funding your debt fine. Canada has the lowest debt to GDP ratio in the G7, and the programs that are supporting the economy have certainly been very helpful in underpinning it, and preventing a much worse outcome, and they're going to be very important in supporting the recovery.

As I said last time, we've learned a few things from past recessions and past episodes. We know that, in 2008-09, globally the stimulus was withdrawn too quickly, which caused the recovery to be much slower than it otherwise could have been.

On the other hand, we know from our own experience in Canada in the 1990s that if we get ourselves into a situation of a structural deficit, that will create a new problem, so you do have to guard against that on the other side.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

I have a minute remaining for the subject of climate change, which I know you are incredibly passionate about. I think it is fair to say that after the 2008 recession, the issue of climate change was more or less ignored by governments, not just at the federal level in this country but in other democracies as well.

We have an opportunity now to get serious about climate change, and I'm glad to see the government move in the direction of embracing a net-zero vision going forward, but what would you say to those who suggest that, instead of seizing the day and focusing on climate change, we should put that aside in favour of more traditional approaches to economic growth and the economic recovery that will follow the pandemic?

Governor, what are your thoughts on that? Can we still focus on climate change and do what's right by the economy? Can we chew gum and walk at the same time, so to speak?

[Tiff Macklem]

Last week at the Public Policy Forum, I did make some remarks on the topic of climate change, in particular what the Bank of Canada is doing with respect to climate change.

What I would say is that climate change is becoming a competitiveness issue for Canadian businesses. Increasingly, consumers, investors and workers care about the environmental footprint of the products they buy, the companies they work for and the companies they are investing in, and that's being reflected in capital flows. As you mentioned, and I would agree with you, coming out of 2008-09, climate change was put on the back burner.

This time, interestingly, this crisis seems to have elevated people's attention to the need to build greater resilience and avoid catastrophes, and with that, you're seeing very large flows of capital into environmental, social and governance, so-called ESG types of investments. The rapid acceleration of money into those types of investments has not slowed down through this crisis.

[The Chair, Liberal, Wayne Easter]

We will have to end it there.

I'm assuming, Mr. Poilievre, that you up are for the official opposition in this next round.

We'll go to Mr. Poilievre followed by Ms. Dzerowicz.

[Pierre Poilievre, Conservative, Carleton, ON]

The three measurements of core inflation have inflation almost on target already. They're in the 1.6 to 1.8 range, so we're getting near the target. The only reason that the CPI is below that is the one-time drop in fuel prices and some peculiarities in the costs of accommodation because of the collapse of the hotel sector, but other than that, inflation is basically at target.

Why are you continuing to print money and buy government bonds when we're on target on inflation?

[Tiff Macklem]

There are a couple of things. First of all, as I think you know, the target is total CPI inflation. That's what matters to Canadians in what they buy. It was 0.7 in October, and, yes, as the oil price shock falls out of the year-over-year number, we would expect inflation to come up gradually, but there is a tremendous amount of excess or unused capacity in the economy.

More than 600,000 Canadians have not got their jobs back, and our view is that we're in a very slow phase of the recovery. We started the reopening phase with a very impressive bounce back in economic activity. That reopening phase is now over and we're into a slower, choppier, bumpier, tougher recuperation phase where we still have a lot of unemployment. Just to put that 600,000 in perspective, at the worst part of the 2008-09 financial crisis in Canada, we lost about 430,000 jobs. We still have more than that to get back.