Bank of Canada rejects ‘cash print’ request in Twitter thread – National

Like Bank of Canada Trying to rule out red-hot inflation, the central bank is engaged in another war: a war against misinformation.

In recent weeks, the central bank has used social media to educate the public about the economy, explaining how inflation works and what it is doing to get it back on target. 2%.

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However, in the most recent time Twitter subject, the bank has gone beyond economic interpretation and aimed directly at a conventional attack on its policy decisions during the pandemic.

“#YouAskedUs if we print cash to fund the federal government. We didn’t,” the Bank of Canada tweeted on August 25, followed by a series of tweets rebutting the claim.

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While central bank officials often hold speeches and other events to convey their thoughts and set expectations, Laval University economics professor Stephen Gordon says that their audience traditionally less than today.

“The only people paying attention are insiders and market experts. And those are often the only people they have to talk to,” said Gordon.

Today’s high inflation environment and the politicization of central banks have led to a wider audience, with many Canadians concerned about rising interest rates and the high cost of living. Along with this heightened interest also caused the Bank of Canada to lose confidence in its operations and mistakenly believe that it was printing money during the pandemic.

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Conservative leader Pierre Poilievre is a fierce critic of the Bank of Canada, vowing to fire Governor Tiff Macklem if he becomes prime minister. Poilievre did not explain how he plans to fire Macklem because the Bank of Canada Act doesn’t give the federal government that power.

He has also repeatedly stated that the central bank printed money to finance federal spending and thus cause inflation.

However, the Bank of Canada and economists say that is not what happened.

“There is always this expression of banks printing money whenever they engage in these types of policies, but it does,” said Jeremy Kronick, Director of Monetary and Financial Services Research at the CD Howe Institute. doesn’t really happen.

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The policy Kronick was referring to is quantitative easing, a measure the Bank of Canada attempted to explain in a series of tweets.

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“We bought existing government bonds from banks on the open market. Why? This helped unblock markets that froze at the start of the pandemic. It allows households, companies and governments to access capital when they really need it,” one of the tweets said.

“We didn’t print the cash to pay for the bonds,” the subject continued.

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Sometimes referred to as QE, quantitative easing is a relatively new tool used to keep cash flowing when interest rates have hovered around zero and cannot be cut further. It gained worldwide attention when it was used by the US Federal Reserve after the 2008 financial crisis.

The Bank of Canada used this policy tool for the first time during the pandemic to combat the risk of deflation. It purchased government bonds from financial institutions using payment balances, or reserves, which it deposited into financial institutions’ accounts and paid interest. As the bank stated, these reserves are not the same as cash.

“Buying that bond lowers the interest rate on that bond and therefore lowers other interest rates, which makes it cheaper for you and me to borrow money. So that’s really where QE has its impact, not so much from the exchange,” Kronick said.

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The Bank of Canada started the quantitative tightening process, where it resells these bonds to financial institutions, in April of this year.

While the Bank of Canada’s motivations to speak directly to Canadians and justify its policies is understandable, Gordon says he’s not sure how effective his efforts will be. as central banks do not have much experience in this area.

“They have nowhere near the media arsenal of people trying to promote the wrong agenda. So, in a sense, they were massively defeated,” he said.

A recent Angus Reid survey found that 46 percent of Canadians trust the Bank of Canada to do its job, while 41 percent said they don’t. The survey found higher distrust among those who voted for the Conservative Party or the People’s Party of Canada.

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The online poll surveyed 5,032 Canadian adults and was conducted between June 7 and 13. It cannot be biased because of generally accepted industry standards. voting, online surveys do not sample the population at random.

Going forward, the Bank of Canada plans to expand its education program on the economy and the role of the bank.

Meanwhile, Kronick said that what will ultimately help boost confidence in the Bank of Canada is to bring inflation back to its target level.

“What’s important and what’s going to get that confidence back is that the bank gets inflation back under control.”

© 2022 Canadian Press

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