BoC should innovate to better support the country once pandemic abates

A new policy paper from the Canadian Centre for Policy Alternatives, released May 1, says the Bank of Canada (BoC) must keep innovating to help governments support jobs, protect public services and address critical spending challenges throughout the COVID-19 era and beyond.

The paper, entitled The Bank of Canada and Crisis Management: COVID-19 and Beyond, offers an overview of the bank’s institutional flexibility and changing agenda. It concludes by examining the bank’s current policies and suggests a more ambitious application of its wide-ranging powers.

“The Bank of Canada’s current bond-buying program has made it possible for the federal government to shore up incomes and keep our economy functioning at a most unusual and difficult time,” says the report’s author, Scott Aquanno. “This demonstration of what the bank can do in a crisis has also shown what it can do to help tackle other fundamental challenges, from supporting public services and jobs to decarbonizing our economy.”

“This sudden and dramatic shift in bank operations and strategy is the latest stage in the BoC’s relationship with government debt, financial markets and the day-to-day lives of all Canadians,” Aquanno writes. “The current moment demands an understanding of the bank’s powers, its history, and a reinvigorated debate about its evolving responsibilities.”

Aquanno adds that as the COVID-19 epidemic abates, governments will be forced to contend with budget shortfalls and the presumed need to finance debt through private borrowing. “Without innovative action, such conditions could produce a new age of austerity,” he adds, pointing out that governments will face pressure to reduce spending and limit debt.  “Austerity brings about suffering at the community level. It erodes the ability of government to support strategically important sectors of the economy. It impedes bold efforts to confront the climate crisis. For the bank to help governments steer away from austerity will require innovative thinking and unconventional policies that further reimagine its relationship to private and public markets.”

One ambitious strategy Aquanno proposes is the development of a new public bank, backstopped by but independent from the BoC, to support public investment and to give governments access to cheap credit over the long term. “The COVID-19 crisis has demonstrated the important role that governments play in the economy,” he adds. “As Canadians face an uncertain future together, an ambitious extension of the BoC’s responsibilities is the most practical option.”