The first and perhaps most productive economic advantage from achieving independence would be our divorce from the Bank of Canada (BOC). I am weary of central banks. I think they have helped facilitate the ruin of many lives by some of their policies yet believing, "If it weren’t for us, our country would be in a much worse place than it is now.” Nonetheless, the western and industrialized world are accustomed to them. Whether they must exist in this modern era is a discussion for a different article—for now, let’s suppose they need to. What would an independent Alberta gain from its own central bank? Are there advantages over the BOC? There are.
1. A Central Bank’s Purpose
If a Federal Bank must exist (it’s dubious), it ought to strive for and isolate itself to only one aim: Increasing the money supply at a constant rate every year.* That’s it; nothing more. This ensures we have neither inflation nor deflation while encouraging predictable and stable prices in a friendly, appetizing economy for investors.
Canada has failed spectacularly in this domain.
2. Our Current Bank's Failure
The BOC presently wanders dangerously deep into the economic dark, far away from the safe principle of increasing the money supply at a constant rate every year. A short investigation into the M0, M1, and M2 creation in Canada in 2020/2021 will flabbergast everyone who reads. This money creation does nothing but tempts an already inflamed inflation set to decimate the Canadian economy. Here's M0 [cash]:*
According to the BOC,
“…inflation is expected to rise temporarily to around the top of the 1-3 percent inflation-control range. This is largely the result of base-year effects—year-over-year CPI [consumer price index] inflation is higher because prices of some goods and services fell sharply at the start of the pandemic. In addition, the increase in oil prices since December has driven gasoline prices above their pre-pandemic levels.”**
But let’s be careful. The BOC’s report is deceiving. What we should be reading is, “We [the BOC] have exponentially increased the amount of money in the economy. Now, there’s going to be inflation.”
Instead, we basically read, “Canada’s inflation is temporary and is the fault of capitalism.”
But as we are aware, inflation is only created by the printing presses, not by “oil prices” or some other scapegoat. More than that, it’s a tested and true theory that prices are an inaccurate representation of the inflation rate in the economy. The high degree of uncertainty between prices and monetary policy renders it impossible to calculate inflation based on prices alone. There are considerate non-monetary factors that affect price levels along with substantial lag in response to monetary policy. If the BOC injects 100 times more money into the economy this year, it might take another year or two for prices to catch up and respond.
So what are the BOC’s present aims? It’s spoiled itself with political affairs, immersing itself in the virtue-signalling and bureaucratic theatre of the day.
Last November, BOC Governor Tiff Macklem presented a speech to the Public Policy Forum. The theme of his address was climate change. He remarks:
“…even though the phrase climate change doesn’t appear in the Bank of Canada Act, the central bank has a clear interest in this issue…For all these reasons, the Bank of Canada is accelerating its work to understand the implications of climate change and promote a climate-ready financial system…we are committed to working with the financial sector to promote resilience to climate change and a smooth transition to low-carbon growth.”*`
The implications of this speech for Canada’s economic future are grave. Fighting a false enemy, climate change, is not what the BOC is constructed to do. A car is better suited to pull an air-seeder than a central bank is suited to dictate climate change policy. But if we believe Governor Tiff Macklem’s speech is a legitimate application to marry climate change targets and monetary policy (we think it is), then we have full confidence that prospective investors will have empty confidence in our economy for years to come.
To illustrate this point, see that inflationary targets could be suspended due to a perceived climate disaster. What if it was determined that an increase in inflation, leading people to poverty forcing them to buy less fuel, defends against climate change? Surely such a policy would need to be implemented. Or what if the climate is affected by interest rates and how much we spend? Etc. Under this presumption, there is no stability, no security, and no guarantees, damning our monetary machine.
3. Alberta's New Bank
Now imagine an independent Alberta. Envision the creation of our own central bank abiding by 3 principles enshrined in a Bank of Alberta Act:*
A total independence from the political arena.
A policy of creating money to achieve a monetary growth at a constant “k” percent (say, 2%) each year, avoiding the countercyclical monetary policy government presently employs for their advantage and our (hidden) disadvantage.
A nominal [before taking inflation into account] inflation rate set at zero.
The second and third principles are self-explanatory. Principle 2. alleviates the present issues of uncertainty and inflation, and principle 3. ensures that those holding money do not suffer a loss of value due to inflation.
Regarding principle 1., Alberta ought to construct a new central bank in this way:
The Bank of Alberta’s (BOA) Governor’s sole objective is to hold monetary creation at a determined “k” percent year after year.
The BOA’s board is to be composed of “x” number of members, all of whom possess expertise in the field of macroeconomics.
Board Members must serve for a set term on the board.
Politicians and corporations are to be totally excluded from the money-making process in order to eliminate political and bureaucratic interference.
If the Governor does not continue to maintain the creation of money at “k” percent each year, the decision may be appealed and challenged in court.
The creation of a central bank operating under these objectives and rules would kill inflation, nurture predictable monetary policy, and reject the politician’s interference and meddling, thus producing a stable, robust, Albertan economy.
On the contrary, these objectives are not the BOC’s present concern. They may say it is, but their actions reveal otherwise. Everyone is nervous the BOC is going to tighten up rates, no one knows if their printing is coming under control (I think it’s too late anyway), and their reassurance that the system is stable is as confident as a man walking on thin ice during a warm day.
*This is the first in a three-part series detailing the economic advantages and difficulties of Albertan independence.
Central Bank's Purpose
*This idea derives from the theories and practices of monetarism made popular by economists like Friedman.
*Graph depicted and found here
**Statement available here
*`Statement available here
Alberta's New Bank
*Principle 2 and 3 are taken from Friedman's and Schwartz's rules described here
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