Finance Committee on Nov. 23rd, 2022

[Carolyn Rogers]

At this point, it doesn't appear that there is a lot of contagion between the crypto trading markets and the more conventional financial markets. That is something that we're watching carefully for, though. The mechanism that tends to translate or transition from crypto markets into the more traditional financial markets is something called a “stablecoin”. It's how you basically translate.

As the governor said, you can't buy your groceries or pay your rent with cryptocurrency, so you ultimately need to turn it into a fiat currency. The mechanism to do that right now is something called a “stablecoin”, and that is the point where the two sorts of universes of the financial sector do meet, so that is an area that we pay particular attention to.

[Heath MacDonald, Liberal, Malpeque, PE]

On the downfalls and potential security concerns, you mentioned regulation or no regulation. Can you touch on that? What are the issues? What is the major security issue with cryptocurrency?

[Carolyn Rogers]

On the two things that we are paying the most attention to, I think one would be the issue I just described: any transmission between the more traditional financial sector and the cryptocurrency sector.

The other one is consumer protection. Particularly in Canada, I think, if a business tells you, look, we're going to put your money in custody and it's going to be there so that you can trade and make payments, you are used to having some assurance around that being a regulated form of business.

These businesses tend to look a lot like things that are regulated, and they pitch themselves as things that Canadians are used to being regulated. Our concern would be that consumers don't understand the risk they're taking. They don't understand the degree of speculation in this business and, as you pointed out earlier, may suffer losses.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP MacDonald. That's the time.

Now we'll go to the Bloc and MP Ste-Marie, please.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

As I only have two and a half minutes, I'm going to ask you my two questions together.

First, do you believe that the current overheating situation is mainly generated by a tightening of supply rather than a strong increase in demand?

Second, one understands the imperative to control inflation, hence the restrictive policy, but this generates inequalities. Unemployment could rise, and it could be higher for women, for example. Obviously, it is the role of government to reduce these inequalities, but in your view, can the Bank of Canada play a role in reducing the inequalities generated by its restrictive monetary policy?

[Tiff Macklem]

As for the question of whether the problem is supply or demand, I would say it is both.

As is well known, there are a lot of problems related to supply chains and crops. This summer the crops were better, but last year there were big problems on that side. Supply-side issues are a big part of it, and we think that these issues will continue to be resolved gradually. The situation has already improved, but there is still work to do.

The other important aspect is demand. What happened was that after the Omicron variant wave, the economy opened up. There were no further waves of the virus and everyone wanted to buy all the services they hadn't been able to buy for over two years. The surge in demand meant that companies were not able to meet all the demand, which put pressure on prices.

The tool we have is the interest rate, and that has an effect on demand. There are other policies that can increase supply. For example, increasing the immigration rate will increase supply, but it will take time. So we still need to use our tools to reduce demand. At the end of the day, the more we do on the supply side, the less we need to do on the demand side.

The second question was about inequality and the role of the Bank of Canada in that regard.

I want to point out that during the most serious recession caused by the pandemic, inequality was very high. We were very concerned that this would have a permanent effect on women, young people and marginalized employees. The good news is that, thanks to the actions of the Bank of Canada, the government and the vaccines, we have had a faster rebound, which has greatly reduced inequality. Indeed, women and young people have returned to work quickly. So most of these people will not feel any permanent effects, which is very important.

There are two aspects to inequality. High inflation does lead to inequality. It has a much greater effect on people with low incomes than on those with high incomes. Also, a downturn in the economy will indeed affect the more vulnerable. We do not welcome this. That said, the only other option would be not to control inflation, but that is not an appropriate solution.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Governor.

Thank you, Mr. Ste-Marie.

Now we go to the NDP with MP Blaikie, please, for two and a half minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much, Mr. Chair.

In the last week or so, Global News has reported that the Bank of Canada has investigated about six harassment complaints under its policy in the last two years. I would say that the bank was pretty tight-lipped in its response to Global's questions about, for instance, whether anyone who had “violated the policy is still employed at the bank” and whether those “broken internal rules”—I think in three out of the six cases—“resulted in financial settlements”. The bank referred to privacy legislation as the reason they wouldn't provide any further comment.

I'm wondering if you believe that level of protection of privacy is appropriate in a context where Canadians are dramatically increasing their expectations of accountability and transparency when it comes to harassment in the workplace and particularly in our federal institutions. Hockey Canada is a recent example, where transparency meant that the organization has had to deal much more seriously with the nature of harassment in its organization than if it had been left to its own devices.

[Tiff Macklem]

I'm going to start, but I think the senior deputy governor is going to want to say something in response to this question as well.

First of all, let me say that I raised the issue of harassment. I was speaking last week at a conference hosted jointly by the Bank of Canada, the Fed, the ECB and the Bank of England on diversity, inclusion and equity in economics, finance and central banking. I talked about the very unequal effects of the pandemic. I also used the opportunity to underscore the importance of eliminating harassment in the workplace.

At the Bank of Canada, we have no tolerance for harassment. I wanted to make that very clear. That led to some questions, and I'm going to let the senior deputy governor say a few words about those.

[Carolyn Rogers]

I want to come at your specific question very directly. I actually think protecting employees' privacy in this situation is exactly the kind of thing you need to do to encourage the kind of environment we want to create. We are legally obligated not to disclose certain information. I can tell you that what really motivates us is that we want to create the kind of environment in which our employees feel safe and able to come forward. As the governor said, we are an organization that cares deeply about improving diversity in our business. Our business—central banking and the financial sector in particular—is not one that is known for its diversity. We are actively trying to fix that. Part of that is creating the kind of environment in which employees can come forward.

We are an organization of 2,000 people. You're talking about a two-year period. I would be concerned if we had nobody coming forward. That would suggest to me that we hadn't created the kind of environment in which people can step forward. I actually am quite encouraged. I'm quite proud of our track record. I can tell you, as a woman who has worked in the financial sector, that I have done my due diligence. I would not work at this place if I thought we were an environment that tolerated harassment. In fact, I wouldn't work at this place if I thought it wasn't an organization that was actively seeking diversity.

I'm quite proud of our track record. We'll continue to be transparent about it.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie. That is the time. It was a great answer and great questions.

We're going over to the Conservatives now. I have MP Chambers for five minutes.

Go ahead, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome back. It's always a pleasure to have you both here at committee.

In answer to an earlier question, you mentioned GDP over the next couple of quarters and it being quite close to potential negative territory. I'm curious. Canada is a country rich in natural resources, a sector that has been quite strong given commodity prices. If it weren't for the natural resource sector, would we almost certainly be in negative territory over the next few quarters?

[Tiff Macklem]

Look, the way I can respond is that.... If you look at our forecast for other countries, we do forecast a recession. We think Europe is already moving into recession. The Eurozone and the U.K. are importing energy. They are importing most of their commodities. They're facing a double problem. The stuff that they buy on global markets is costing more. They are less well off. That is certainly affecting their economies. That's one main reason they are headed into a recession.

As you suggested, higher energy prices, higher wheat prices and higher fertilizer prices—these are important materials, commodities that we export—are bringing more income into the country. That is supporting the Canadian economy. Yes, that is something that is built into our forecast.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

You mentioned that any slowdown might be temporary, transitory. Is it fair to bring back that word? I'm sorry, but I couldn't help myself.

[Tiff Macklem]

I don't think I'm going to be using that word again. It didn't work out too well.

[Adam Chambers, Conservative, Simcoe North, ON]

You previously said that inflation would cost a couple of thousand dollars a year for a family. I think I heard you say today that inflation would cost a family about $3,500 dollars. Is that for a year?

[Tiff Macklem]

Inflation is roughly 7% now, so yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay, so that number has increased.

We often debate in this chamber about the best way to help individuals cope with inflation. There are proposals to increase direct transfers to those in the lower-income brackets. There are also proposals to provide families or consumers with some kind of energy relief package as we have seen in other jurisdictions.

From your perspective, in terms of having to deal with the outcomes of the decisions that we make on the fiscal side, is one of those two competing options worse or more preferable than the other? How should we as policy-makers think about that?

[Tiff Macklem]

I'm glad you're discussing this. Look, Canadians are really feeling inflation. We're very aware that it's hitting lower-income Canadians a lot harder. The main reason for that is that they don't have buffers or they have very small buffers. The inflation is in groceries. It's in rent. It's in transportation. These are not things you can avoid, so it is affecting them more.

In terms of my advice, I think the advice from the IMF is very sound. Policies aimed at mitigating the effects of inflation on citizens really need to be targeted—targeted to the most vulnerable—and temporary—temporary while there is an inflation problem. The danger of very widespread measures is.... You know, the price system works. You have to let it work. That's part of getting inflation back down. You don't want monetary and fiscal policy to work at cross-purposes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

We have historically high levels of debt in every major part of the economy: consumers, governments and businesses. We talked about the challenges that households will have with higher interest rates and refinancing. I know the bank put something out yesterday.

Are you worried that there is not a lot of room left for the bank to move interest rates up before the rest of the stuff starts to break, before the model starts to break, before people can't afford...? Just briefly, how much room do you have left to move before you're worried?

[Tiff Macklem]

Actually, the senior deputy just gave a speech on this the other day, so I'll let her speak to it.

[Carolyn Rogers]

In answer to an earlier question, we outlined the variety of things we're watching as we make our decisions each time. One of them is how rates are being absorbed by the economy. As we've said, we know that for some Canadians, particularly those who are more indebted, interest rates are really biting. We understand that.

We are paying very close attention. Ultimately, we do need to see the effects of monetary policy pull demand down.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Thank you, Mr. Chair.