So long, penny. Why don’t you take the nickel and the dime with you, too?

By Alan Parker - Monday, February 4, 2013 at 9:00 AM - 0 Comments

(Jonathan Hayward/CP)

The Royal Canadian Mint is finally beginning its phase-out of the penny today — and not a minute too soon.

The penny hasn’t made a lick of sense since penny candy started costing more than one cent — and that was before Lester Pearson became prime minister. It’s been costing taxpayers more than its face value to produce since the 1980s.

So good riddance to the feckless penny. Now the Mint should seriously think about getting rid of a couple of other coins that have outlived their usefulness — the nickel and the dime.

Why? Because a century of inflation has robbed them of intrinsic value.

According to the Bank of Canada’s inflation calculator, the Canadian dollar of 1914 had the purchasing power of about $20 in today’s dollars. So a penny then had the purchasing power of 20 cents today. Likewise, a nickel had roughly the same value as a dollar today and having a dime in your pocket a century ago was the same thing as having a toonie now.

The humble penny may have had even more worth back then than the Bank of Canada gives it credit for. Consider that 100 years ago most daily Canadian newspaper cost one cent. The price in competitive Toronto did not rise to two cents until 1917 and that new price held for more than 20 years. Compare that to what you pay for a newspaper today and you get some sense of the real worth of a penny a century ago.

So the penny, nickel and dime were all useful, valuable coins — 100 years ago. Today they just wear needless holes in your pocket or collect in a jar.

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How the BoC revised its growth forecast down—and up

By Stephen Gordon - Thursday, January 24, 2013 at 8:50 PM - 0 Comments

(Chris Wattie/Reuters)

They key elements of the Bank of Canada’s Monetary Policy Report (MPR) that was released yesterday are by now well-known: growth in the second half of 2012 was weaker than expected, and the growth of consumer and mortgage debt has slowed. Put together, the two developments mean that whatever date the Bank might have had in mind to start increasing interest rates, it’s been put off. Again.

But there are another couple of points that don’t seem to have received much attention:

1. Estimates for GDP in the first two quarters of 2012 were revised downwards. The data available to the BoC when it was preparing its October 2012 MPR showed an annualised growth rate of 1.9 per cent in the first half of 2012. These estimates were then revised downward in the November national accounts release: the most recent data now suggest that GDP grew at an annualised rate of 1.7 per cent.
2. The Bank’s projection for the next two years tell remain fundamentally the same. Yes, the GDP estimate for the fourth quarter of 2012 (in the jargon of forecasting, this is a backcast — events that have already occurred, but for which definitive data are not yet available) has been sharply reduced, but the growth projections for the first two quarters of 2013 have been revised up. The Bank’s position is that much of the recent economic weakness is due to to transitory factors and that GDP growth will catch up to to the path the Bank was originally expecting for 2013.

The graph below charts the projections for GDP growth from the last two MPRs. The solid lines are the data that were available when the projections were made, while the dashed lines represent projections.

Given the lags with which monetary policy operates, current decisions about monetary policy are being made with an eye to projections for the latter half of 2014. Both the October and January MPRs have GDP reaching the Bank’s estimate for potential GDP by the end of 2014, so the essential strategy is the same: the next interest rate change will be an increase, although the timing of that increase has been deferred.

Mark Carney on the price of your house (and the value of his privacy)

By John Geddes - Wednesday, January 23, 2013 at 3:42 PM - 0 Comments

Far be it from me to suggest that Mark Carney’s career trajectory and choices of vacation spots aren’t fascinating—and both topics got a decent share of attention at his news conference today—but the Bank of Canada governor’s latest message on the Canadian housing market strikes me as even more interesting.

Here at Maclean’s—as you might have noticed if you watch our cover stories, including this recent one—we are quite intrigued by the housing market. And I don’t think we’re alone, based on the evidence of the many dinner conversations I’ve heard turn, inexorably it seems, to real estate prices. Carney’s message today, as he discussed the bank’s quarterly monetary policy report, is that the heat is out of the market.

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Flaherty and BoC working on a list of candidates to fill bank’s top job

By Erica Alini - Wednesday, January 16, 2013 at 1:45 PM - 0 Comments

Just in from Finance Canada:

The Honourable Jim Flaherty, Minister of Finance, met with David Laidley, Chair of the Special Committee of the Board of Directors of the Bank of Canada designated to develop a list of qualified candidates for the position of Governor of the Bank of Canada.

As a matter of course, this meeting affords both the Minister and the Chair an opportunity to review procedure and to discuss timelines to ensure a smooth transition.

The position of Governor was advertised on January 7, 2013 by the recruitment firm Odgers Berndtson, at the direction of the Special Committee. The mandate of the Bank of Canada is to conduct monetary policy to keep inflation low, stable and predictable and to promote the integrity of Canadian currency. The Governor has responsibility for the oversight of all aspects of the work of the Bank of Canada. With the recruitment process now underway, the Special Committee, in close consultation with the Minister, will review the list of initial candidates put forward by the recruitment firm.

Once fully vetted, the Special Committee will then recommend a roster of qualified candidates to the Minister for him to interview. The appointment of the Governor by the Directors is subject to the approval of the Governor in Council.

Canadian businesses still relatively upbeat, Bank of Canada’s survey shows

By Erica Alini - Monday, January 14, 2013 at 11:24 AM - 0 Comments

Canadian firms expect higher sales growth and are planning to step up investment, the Bank of Canada’s Winter Business Outlook Survey shows. Prospects for hiring were also rather upbeat, with 42 per cent of the 100 businesses polled by the BoC saying they expect to increase their employee ranks over the next 12 months.

On a less positive note, firms also reported a greater amount of spare capacity in the economy, with only 34 per cent saying they would struggle somewhat or significantly to meet an unexpected jump in demand, down from 47 per cent in the prior three-month period. Labour shortages also seemed to be much less of a concern, with 25 per cent of firms saying they faced the problem, down from 33 per cent in the previous survey. Still, considering the current state of the global economy, all this sounds like a rather optimistic outlook.

There’s one big catch, though. The survey was conducted in November and December, when many Canadian businesses likely still had faith that Washington would find a way to sort its self-made fiscal crisis. The survey, unfortunately, tells us nothing about the collective mood of Canada’s business sector in the wake of the Hail Mary fiscal cliff deal of Jan. 1 and looking on to debt ceiling talks that promise to be just as painful and inconclusive.

Canadian firms look to better results, more hiring in 2013: central bank

By The Canadian Press - Monday, January 14, 2013 at 11:11 AM - 0 Comments

OTTAWA – A new survey by the Bank of Canada suggests Canadian business executives are looking forward to better conditions in 2013 than last year.

The central bank’s latest quarterly business outlook survey shows firms on balance think sales and employment will pick up after a tough 2012.

The survey is based on responses from senior management at 100 firms chosen as a representative sample of the overall economy. Continue…

Want to be the next Bank of Canada governor? Sign here

By Rosemary Westwood - Friday, January 11, 2013 at 4:37 PM - 0 Comments

When the Bank of Canada interviews for the next governor, it may want to add one final step: the signature test.

Because if the John Henry of the next Mark Carney looks anything like the loopty-loop scribbles of a two-year-old, there could be trouble. Or, comedy, at least.

Just as there is in the U.S. right now with the nomination by President Barack Obama of a new Treasurer Secretary, Jacob “Jack” Lew. About Lew’s handwriting, we can’t be sure. But his signature looks like a really great roller coaster, or a telephone cord:

That’s got the U.S. media giggling, and Obama is playing along.

“When this was highlighted yesterday in the press, I considered rescinding my offer to appoint him,” Obama joked.

To the best knowledge of the folks at the Bank of Canada’s Currency Museum, no Canadian has every been rejected for the prestigious post of governor thanks to their signature.

“In the past, from material that’s been received by the collection, there doesn’t appear to have been any real revision or rejection of an officer’s signature,” says curator David Bergeron.

And putting those signatures onto Canadian bills is “pretty straightforward, actually.”

Both the governor and deputy governor sit down and sign a few pieces of paper. They pick the best signature, and a team of designers makes the scribbles fit the space available on the bill. Then the governor or deputy governor signs off on their signature, and the Minister of Finance has the final say.

A few fun (not quite as funny, but it’s Canada) facts about currency signatures:

• Graham Towers was Governor of the Bank of Canada from Sept. 10, 1934 to Sept. 10, 1954. His signature has appeared the for the greatest number of years on Bank of Canada notes.
• The signature of Gerald Bouey remained on Canadian bills long after he retired as governor of the Bank of Canada in 1987, “up to two years” according the currency museum. While it is difficult to determine the exact date of the signature change from Bouey to Crow as Governor of the Bank of Canada, it happened sometime between Bouey’s retirement on Jan. 31, 1987 and the issue of the Birds of Canada $10, which never bore Bouey’s signature, on June 27, 1989.
• Signatures were added to Bank of Canada notes first by letterpress and later by intaglio, a type of printmaking. The current method for applying signatures to notes is through lithography.

NGDP targeting could change the way we manage inflation

By Stephen Gordon - Monday, January 7, 2013 at 11:22 AM - 0 Comments

(Adrian Wyld/CP)

The original goal of this post was to answer the following questions:

1. What was Mark Carney talking about in his December speech entitled “Guidance“?
2. What is NGDP targeting and why are people talking about it?

It turns out that that before I could figure out what to say about those two questions, I had to talk about two other things first: inflation targeting and price-level targeting.

There’s really no great mystery about what the Bank of Canada does and why: it has an explicit mandate from the government to conduct monetary policy in such a way as to ensure that inflation rates stay between one and three per cent per year, with two per cent being the de facto target. It’s been doing this for more than twenty years, and successfully, too:

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New $20 plastic bank notes still indigestible for many vending machines

By Dean Beeby, The Canadian Press - Sunday, January 6, 2013 at 6:24 AM - 0 Comments

OTTAWA – Thousands of vending machines still can’t digest those plastic $20 bank notes the government released two months ago, with machine owners blaming the Bank of Canada for their problems.

As many as half a million machines that scan bank notes needed reprogramming to accept the radically redesigned $20 bills, the most popular denomination in Canada.

Some 145 million polymer $20 notes have been put into circulation since Nov. 7, one of a series of new plastic notes intended to thwart counterfeiters and last much longer than their paper-cotton predecessors.

Jim Lockie has been converting his 1,200 machines in Fort McMurray, Alta., full-time for two months, but still has about 300 to go.

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2012 on Parliament Hill: John Geddes sums up a year in 12 chapters

By John Geddes - Saturday, December 29, 2012 at 1:44 PM - 0 Comments

How many senators did Prime Minister Stephen Harper appoint in 2012? How many years does the government allow, in its latest plan, for “development and acquisition” of F-35 fighter jets? How many premiers, provincial and territorial, attended the November economic summit in Halifax? (Hint: Saskatchewan’s just phoned in.)

In all cases, the answer is an even dozen. But for our purposes here—in this third annual installment of a year-capping look back—we’re interested in 12 only as the number of months in the calendar. Select just a single story for each, and 2012 might almost begin to show some semblance of coherence.

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What’s underneath the no comment?

By Aaron Wherry - Saturday, December 22, 2012 at 1:32 PM - 0 Comments

The Globe hears that the Finance Minister is concerned about Mark Carney’s dealings with the Liberals.

Finance Minister Jim Flaherty is privately disappointed and concerned over Bank of Canada Governor Mark Carney’s courtship by federal Liberals as well as his holiday stay at the home of an opposition MP, sources say.

The Finance Minister feels strongly that public servants should maintain the appearance of impartiality and is concerned when actions call that into question, sources say.

‘Mark says there is no partisan political activity’

By Aaron Wherry - Friday, December 21, 2012 at 2:14 PM - 0 Comments

Jim Flaherty talks to Sun News about the bank governor.

Finance Minister Jim Flaherty is satisfied that Bank of Canada governor Mark Carney was not dabbling in partisan politics when Carney spent a week last summer vacationing at the Nova Scotia home of a Liberal MP.

“Mark says there is no partisan political activity,” Flaherty said in a year-end interview broadcast on Sun News Network Thursday. “That’s very important. It’s fundamental, I think, for confidence in our institutions. So I haven’t commented on it other than that because it’s up to the governor, I think, if he chooses to comment on it to go ahead and comment.”

Flaherty defers

By Aaron Wherry - Wednesday, December 19, 2012 at 3:02 PM - 0 Comments

The Finance Minister still doesn’t have anything to say about Mark Carney and the Liberals.

“I’ve spoken with the governor,” Flaherty told reporters Wednesday at an event in Burlington, ON. ”I don’t really have any comment on the issue right now. I imagine, at some point, he might be willing to respond.”

Accounting for Mark Carney

By Aaron Wherry - Tuesday, December 18, 2012 at 2:17 PM - 0 Comments

John Geddes considers the rules that apply to the governor of the Bank of Canada.

Paul Boothe defends Mr. Carney.

As a former central banker, I understand very well the value of central bank independence and credibility.  My own view is that I doubt very much that the independence or credibility of the Bank of Canada has been impaired … Having worked side-by-side with Mark Carney, I do know that he is a person of enormous talent, energy and most importantly, integrity.  He drives a hard bargain, but always with the public good clearly in mind.  From personal experience, gained working together in the pressure-cooker environment of senior public service, I have come to trust Mark to use his talent and energy to always do what he believes is right for Canada.  Nothing I have read has shaken my confidence in his purpose or his integrity.

I’m told Mr. Carney is scheduled to appear before the British treasury committee on February 7.

What rules apply to Mark Carney’s political activities?

By John Geddes - Tuesday, December 18, 2012 at 11:37 AM - 0 Comments

(Nathan Denette/CP)

In the swirl of debate around Mark Carney’s reported involvement with Liberals eager to have him run for their party’s leadership, there’s been a troubling lack of precision about exactly what rules apply. Some commentators hold that since Carney is governor of the Bank of Canada he must avoid any hint of contact with partisan politics. Others shrug off the fruitless courtship as standard Ottawa stuff and no big deal.

For my part, I’m less interested in the gut reactions of observers than in finding out exactly what Carney is and is not allowed to do. If you imagine that would be a straightforward inquiry, you’d be wrong. The Bank of Canada’s lawyer, I’m told this morning, holds that Carney is restrained, when it comes to party politics, with respect to any “specific activity undertaken in the public domain,” like political fundraising or actually running for office.

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The Carney affair: ‘He’ll have to be far more careful over here’

By Aaron Wherry - Tuesday, December 18, 2012 at 9:10 AM - 0 Comments

More reaction from British MPs.

Matthew Oakeshott, the Liberal Democrat treasury spokesman, said there needed to be clear demarcation lines between the governor and parliament to maintain the Bank’s independence. “He’ll have to be far more careful over here – no riding with Cameron or skiing with Osborne,” he said.

Paul Myners, a City minister in the previous Labour administration, said he expected Carney to face tough questioning when he appears before parliament at his confirmation hearing. “I guess it would have been taken into account by the chancellor but will also no doubt feature strongly in his interview with the treasury select committee,” said Myners, who was also a member of the Bank of England court, which acts as its governing body. ”We delude ourselves if we try to pretend that the governor does not take political questions – the current one has pursued policies that have had a profound impact on the distribution of wealth, favouring those in debt over those who have saved, and favouring the well-off retired over the poor. The important thing is to be accountable to a credible and transparent court, which is not the case at the moment, and accountable to parliament.”

The Carney affair: ‘There is a risk on being open about your place on the political spectrum’

By Aaron Wherry - Monday, December 17, 2012 at 10:51 PM - 0 Comments

Jim Flaherty has nothing to say about Mark Carney and the Liberals.

“I have no comment on any of that,” he said. “I usually have comments on everything, but I have no comment on any of that.”

The New Democrats would like you to know that Peggy Nash would never invite the bank governor to her vacation home.

A New Democratic Party spokesman said Monday the party considers the Bank of Canada governor to be a non-partisan position and would never undermine that by inviting the governor to stay at an MP’s house.

And several British MPs are eager to hear what Mr. Carney has to say for himself.

Andrew Tyrie, the Tory chairman of the Treasury Select Committee, told the Times of London on Monday: “My colleagues will want to address every such issue at the preappointment hearing.” … Some British Conservative MPs who want Britain to adopt a more aggressive monetary policy expressed concern to The Times on Monday about Mr. Carney’s conversations with Canadian Liberal Party members. Mark Field, the Tory MP for the City of London, said: “Now we know he’s a liberal, there seems no doubt that it will be ‘business as usual’ for interest rates right through until 2015.” Jacob Rees-Mogg, the Somerset Tory MP, told The Times: “There is a risk on being open about your place on the political spectrum. Having someone with known political views in a nominally apolitical job can lead to disagreements.”

Mark Carney’s visit to Scott Brison’s vacation home

By Aaron Wherry - Monday, December 17, 2012 at 11:22 AM - 0 Comments

A statement from Jeremy Harrison, a spokesman for the Bank of Canada, on the governor’s visit to the home of a Liberal MP this past summer.

“During their summer vacation, the Governor and his family travelled around Nova Scotia. The Carney family spent a portion of their time staying at Scott Brison’s Cheverie vacation home. Mr. Brison and Governor Carney are personal friends, and have been so for about a decade. The visit was part of the Governor’s and his family’s personal vacation time. The Bank of Canada’s General Counsel, who is responsible for enforcing the Bank’s Conflict of Interest policy, has assessed that this visit does not breach the Bank’s Conflict of Interest guidelines in any way. Neither the Bank of Canada, nor Governor Carney, have an actual or potential commercial or business relationship with Mr. Brison. Mr. Carney’s acceptance of hospitality provided by a personal friend does not arise out of ‘activities associated with official Bank duties’. Nor can it be defined as partisan or political activity.”

Explain yourself, governor

By Aaron Wherry - Monday, December 17, 2012 at 9:42 AM - 0 Comments

Mike Moffatt explains his concerns about Mark Carney and the Liberals.

The problems for Mr. Carney and the bank now reach beyond recent monetary policy decisions. A month before Mr. Carney had announced that he would not run for the Liberal leadership – famously retorting: “Why don’t I become a circus clown?” – he gave a speech in Calgary critical of Tom Mulcair’s position that Canada is suffering from Dutch Disease. He called Mr. Mulcair’s position “overly simplistic and, in the end, wrong.” It is unusual, though not unheard of, for the Governor of the Bank of Canada to weigh in on policy debates. His remarks were in all likelihood an independent attempt to stifle a stale talking point that had turned into a political football. That some will now almost certainly go back and parse his comments in an attempt to uncover even the slightest taint of partisanship is a major problem for the bank.

If the allegations are untrue, Mr. Carney must refute them as quickly as possible in order to protect the bank’s reputation. If not, the bank must distance itself from Mr. Carney as quickly as possible and request his immediate resignation.

According to the iPoliitcs morning brief, Mr. Carney feels “stung” by the criticism he has taken and he and the Bank will be addressing these accusations today.

The question of Mark Carney

By Aaron Wherry - Sunday, December 16, 2012 at 11:00 PM - 0 Comments

Stephen Gordon explains his concerns about Mark Carney’s wooing by the Liberals and Sun Media picks up the Globe story.

This evening, I asked the Prime Minister’s Office: Does the Prime Minister have confidence that Mark Carney has done his work as governor of the Bank of Canada in a non-partisan manner and will continue to do so until his scheduled departure?

Here is the response I received.

As the PM said at the time of the BoE announcement, Mr. Carney has done an admirable job as Governor of the Bank of Canada.

The full statement from Mr. Harper after Mr. Carney’s appointment to the Bank of England was announced is here.

The Carney affair with the Liberal Party: It will all end in tears

By Stephen Gordon - Sunday, December 16, 2012 at 8:33 AM - 0 Comments

(Chris Wattie/Reuters)

I — and presumably most people familiar with the recent history of monetary policy — read this article in Saturday’s Globe and Mail with mounting horror:

Mark Carney was cast as the perfect alternative to Justin Trudeau by a tight network of Liberals who pulled out all the stops last summer to attract the Bank of Canada governor into the Liberal leadership race.

Mr. Carney was responsive to the efforts, and his actions over the summer – taking phone calls, asking questions about the race, staying over at a senior Liberal MP’s house during a week-long family holiday in Nova Scotia – fueled speculation about his candidacy.

By September, Liberal officials were trying to put together a team of organizers and supporters, and mapping out Mr. Carney’s road to victory at next year’s Liberal convention.

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Mark Carney talks fiscal cliff, Fed policy and housing bubble

By Tamsin McMahon - Tuesday, December 11, 2012 at 5:57 PM - 0 Comments

(Nathan Denette/CP)

In his first public speech after being named head of the Bank of England, Mark Carney, governor of the Bank of Canada, deftly dodged the question of what lesson he might take with him to Europe from his experience shielding Canada from the depths of the global recession. He did, however, give some hints about his approach and touched on a range of other issues, from what the debate over the U.S. fiscal cliff means for Canada, to how we’re not yet out of the woods when it comes to the country’s housing bubble.

Here are a few excerpts from the Q&A that followed Carney’s speech at the CFA Society in Toronto this morning:

On what lessons he plans to take from Canada to the Bank of England:

I think my comments about the Bank of England are best first delivered to the Treasury select committee given their role and we’re working right now with the committee to find a date in the new year that works for both of us.

[That said] there are experiences of crisis management that we had here in Canada. Much is made in Canada that we didn’t have bank failures and we didn’t have other issues. In part, we didn’t have those because we made tough decisions in a timely fashion…The first thing is transparency. You have to level with people on the scale of problems. It does no good to try to spin your way out of a crisis.

…I would say on monetary policy and financial stability policy writ large, I think one the strengths of the Bank of Canada is the breadth and dept of talent in the institution and, as the governor, the importance of listening to diverse points of view and synthesizing within that institutional structure either a path for monetary policy or a path financial reform for other things. Those are some of the aspects that worked here in Canada.

The last thing I would reinforce is basically the power of the flexible inflation targeting framework, which we and many others practices…In order to get the most benefit from that framework,  transparency and communications is absolutely crucial. There’s a way to use communication to potential amplify that power in extraordinary circumstances, which may be appropriate in some jurisdictions, not appropriate in other jurisdictions.

Those are general lesson, which are not necessarily directly applicable to the Bank of England.

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Mark Carney explains central bank speak

By Erica Alini - Tuesday, December 11, 2012 at 2:46 PM - 0 Comments

Mark Carney just spoke at the CFA Society in Toronto. The theme is “guidance,” or how central banks can try to influence investors’ expectations by indicating the likely future movements of interest rates. As the Globe’s Kevin Carmichael noted last week, Carney’s tenure at the Bank has brought about some important changes on guidance. The governor “embraced the academic argument that a little uncertainty could be good for financial stability: a healthy debate about the likely path of interest rates eliminates the risk of a one-way bet, which essentially was the case in the U.S. ahead of the financial crisis.”

Here are some interesting bits from the prepared remarks, which the governor said do not contain any new guidance about the Canadian economy:

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Why is the Bank of Canada holding interest rates firm?

By Stephen Gordon - Thursday, December 6, 2012 at 12:41 PM - 0 Comments

Getty Images

The Bank of Canada’s most recent interest rate decision offers the same guidance for interest rates as its previous decisions: interest rates will go up eventually, but not just yet. There is no hint that the Bank is contemplating a relaxation of monetary policy in the near or medium term.

This stance puzzles some observers: inflation rates have been below the two per cent target for six months and the Bank of Canada’s estimate of the output gap (the difference between how much the economy is actually producing and how much it could produce operating at full capacity) widened after weak GDP growth in the third quarter of 2012. This state of affairs would generally suggest that a relaxation of monetary policy was in order. So why is the Bank holding firm?

One answer is that the BoC believes that the current weakness in the economy is transitory. As Milton Friedman once noted, there are “long and variable lags” between a change monetary policy and its effects on the economy—a reduction in interest rates now may only take effect some time in 2014.

Another answer is that the Bank is worried about the possibility that holding interest rates too low for too long will fuel an asset price bubble—either in stocks, houses or both—a concern it expressed today in its Financial System Review. It may feel that a temporary deviation of inflation below target may be an acceptable price to pay to avoid a financial crisis.

But yet another answer may be what’s happening in labour markets:

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