Pierre Poilievre should learn from John Diefenbaker: play with the central bank at your own risk
Most of us are a little fuzzy as to what our central bank actually does. He speaks only occasionally, and in the opaque tongue of a Delphic oracle. But we all know it’s powerful, essential to our financial system, and has a reputation for absolute integrity.
Strangely, in most countries they are a 20th century invention, with the exception of the Bank of England. The United States Federal Reserve was founded in 1913 and our Bank of Canada two decades later. Since their inception, they have taken on more and more political roles, especially since the 2008 crash. appeal”. Today they are the guardians of inflation, setting interest rates and trying to fight unemployment and even climate change.
The bank and its governor are as essential to our financial system as the Supreme Court is to the law. They can only fulfill this essential role if they are seen to be competent – and entirely independent of politics. Canada’s international financial reputation depends on the probity and prudence of the bank.
Conservative Party leadership candidate Pierre Poilievre pretends not to understand any of this; he says he will fire the governor and take the bank under political control by making specific political demands on him. It’s not just dangerous nonsense – it’s a window into how utterly irresponsible he is and how clearly unfit he is to be party leader, let alone prime minister.
John Baird, his unlikely campaign co-chair, should sit him down and tell him a story about the last Conservative prime minister who played with such fire. John Diefenbaker didn’t like then-central bank chief James Coyne, so he fired him. The damage he caused to Canada and his party contributed to Dief’s defeat.
But the story is more interesting than the result. In the late 1950s, Canada was on one of its nationalist flights of fancy. We scolded the government and Canadian companies for selling our natural resources to the United States. The illusion that our prosperity did not require continued American capital struck members of all three national parties, as well as the Governor of the Bank of Canada. Coyne was also horrified by Conservative spending, deficits and disinterest in inflation.
Coyne was ignored and was soon at loggerheads with the Diefenbaker government. Losing private debates over these essential policies, he went on a lecture tour, harshly attacking the government. Now this is a no-no for a central banker. After some negotiation, he agreed to stop speaking out if they put limits on the pace of spending. Dief was so angry at being publicly belittled that he refused, demanding Coyne’s head. He obtained it on July 13, 1961.
Coyne’s “resignation” caused the Canadian dollar to fall, as well as the markets. Financial greats in Toronto, Montreal and New York have privately expressed their horror at this political intervention. Few Canadian or American financial bosses liked Coyne or his ideas, but they hated the idea of a central bank run by politicians even more. A year later, Diefenbaker lost his huge majority, a few months later his government.
The Fraser Institute, Canada’s leading far-right think tank, recently published a harsh attack on the bank and its expanded mandate. It is not unreasonable to wonder how independent a bank is when it accepts a government’s desire to not only reduce inflation and protect the currency, but also to fight unemployment and climate change.
The Trudeau government walked pretty close to the line in publicly demanding this of the bank. But no one who doesn’t understand how critical the bank’s independence is to Canada’s reputation wouldn’t call for the governor’s head. It’s almost a certain disqualifier for anyone looking to run the country, given how reckless they are.
Here again, the strange Pierre revels in his imprudence.