Interesting article about the B of C.
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Written by David E. Bond,
Retired Chief Economist to HSBC Bank Canada
and Adjunct Professor at the University of British Columbia,
Economic Bulletin is a weekly commentary on current economic issues.
EB #01-001
A quiet man
At the end of this month after seven years in the post, Gordon
Thiessen will step down as Governor of the Bank of Canada.
His immediate predecessor, John Crow, had tangled often with the
Liberals when they were in opposition. He was a very public
personality and suffered fools not at all. When the Liberals gained
power in the fall of 1993, it was evident that he would not be
reappointed when his term expired in the spring of 1994.
Failing to reappoint a sitting central banker is fraught with
difficulties. International financial markets might misinterpret the
dismissal of the Governor as an indication the new government was
inclined to subordinate monetary policy to more immediate political
aims. In an open economy such as Canada, such an opinion, if widely
held, could have drastic consequences to the value of the Loonie.
Therefore the government had to proceed with caution.
In the end, Crow accepted the inevitable -- thereby saving both the
government and the Minister of Finance embarrassment, Thiessen, Crow's
Senior Deputy Governor, was appointed in his place. Virtually unknown
outside banking and government circles, Thiessen is, in many ways, the
opposite of Crow. Quiet of demeanor, without a forceful image but with
a razor sharp mind, he had his work cut out for him.
First he needed to convince his fellow central bankers, world
financial markets and doubters within Canada that he was just as
dedicated to price stability as was his predecessor. The proof came
early on with a clear reaffirmation of the determination of the
central bank to keep inflation within a defined limit. Until the
inflation demon was vanquished both in fact and in expectation, the
stance of the central bank was to be one of restraint.
While interest rates had come down from their high levels of 1990,
they were still high in early 1994 at over 6% for 90 day Treasury
Bills. The inflation rate was well within the bank's target range at
1.7% per year, but unemployment was in double digits at 10.6%.
A second challenge Thiessen faced in 1994 was toning down the rhetoric
about monetary policy. Crow had been vocal in pushing for price
stability even when it was obvious to many that the Canadian economy
was in the throws of a recession. Strident critical articles appeared
not just in academic journals, but in the popular press denouncing the
Bank's policy. Thiessen's response was a series of speeches and
publications from the Bank that described how it was formulating its
policy, what were the variables it was following and why. He was
willing to go out and face the Bank's critics and argue the pith and
substance of the arguments. It is a testament to the success of this
policy that, while there are still critics of the Bank's policies, the
debate is much more civilized.
Third, Thiessen made a major effort to improve the transparency of the
Bank's activities. Monetary Policy was a new half-yearly publication
that explained the Bank's outlook for the economy and what were, in
its opinion, the important events of the immediate past. He made sure
that the document and the Bank's general line of thinking were carried
out to the regions beyond Ottawa and that built further confidence in
the Bank. A related achievement was to move the Bank to a policy of
fixed dates for announcing the Bank Rate, the rate at which the
central Bank will lend funds to the banks and other financial
institutions. In the past when the Bank had announced changes it was
on an as-needed basis and some critics thought it created uncertainty
and potential misinterpretation. Fixed announcement dates would
minimize uncertainty.
Finally, Thiessen made it very clear that he was his own man and that
he understood how the Bank had evolved since its founding in the
middle 1930's. In two speeches in particular, he reflected on how
monetary policy had evolved in the 65 year history of the bank and how
the financial services sector had changed from the 1964 Royal
Commission on Banking and Finance. They are thoughtful and insightful
pieces indicating a profound understanding of how the financial system
works in Canada and the role of the central Bank.
He has served his country well and he deserves our thanks for a job
well done.
Economic Bulletin Économique, prepared by David E. Bond, Retired Chief
Economist to HSBC Bank Canada and Adjunct Professor at the University
of British Columbia, reflects his personal observations and does not
necessarily reflect the position of HSBC Bank Canada or its board of
directors. The Economic Bulletin Économique is not intended to be a
comprehensive review of all developments nor is it intended to provide
financial advice. Readers should not act on information in Economic
Bulletin Économique without seeking specific advice from qualified
advisors on particular matters which are of concern to them.
This publication may be reproduced in whole or in part as long as
credit is acknowledged to the author and HSBC Bank Canada.
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