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Tuesday, August 26, 2008

The good work of counterfeit deterrence is undone by loose monetary policy

The Bank of Canada announced today the recipients of its 2008 Law Enforcement Award of Excellence for Counterfeit Deterrence. The honours went to Corporal Tim Laurence, Corporal Susan MacLean, and now-retired Staff Sergeant Ken MacDonald of the Integrated Counterfeit Enforcement Team, RCMP Toronto West. The trio was recognized at the annual conference of the Canadian Association of Chiefs of Police in Montréal, Quebec.

The recipients of the Award of Excellence executed an investigation code-named Project Ophir, which foiled a criminal plot to produce over $6 million in counterfeit bank notes.

The work of these dedicated cops benefited every Canadian. Printing money creates inflation, devalues the dollar and destroys savings.

But, as I’ve written before in my post on the film The Counterfeiters, so does a loose monetary policy.

The Bank of Canada is expanding the money supply at 12%. That’s sure to be inflationary, but maybe that’s the point. Canada’s strong dollar is hurting the vote-rich manufacturing centres in Central Canada with a federal election on the horizon.

Posted by Matthew Johnston on August 26, 2008 in Canadian Politics | Permalink


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The Bank of Canada has nothing to do with and is completely independent of the Federal Government.

Same for the Fed.

Posted by: epsilon | 2008-08-26 4:34:43 PM

They are arms-length, Epsi, but the Finance Minister sits on the board and in the event of extreme differences of opinion on the direction of monetary policy, he trumps the Governor of the Bank of Canada.

That power usually keeps the BOC and the federal government aligned.

And I’m sure the BOC is concerned about Canada’s manufacturing sector for its own reasons, which would make me bet on a lower Canadian dollar.

Posted by: Matthew Johnston | 2008-08-26 5:05:04 PM

It makes sense MJ. The timing is right, and for central Canada it's the simplest answer.

I need to start listening to my girlfriend. She bought a pile of US dollars when we were at par. I told her she was making a big mistake, but thank goodness she ignored me. She's made enough already for a nice vacation. If the dollar really hits the tank, maybe she'll take me to Hawaii.

Posted by: dp | 2008-08-26 5:21:24 PM

In previous cases where the federal government has interfered with banking policy the Governor has resigned. Interference is not taken lightly.

The Bank of Canada's policy since the days of John Crow have been all about keeping a lid on inflation. If anything, that policy is even stronger now.

The BOC might mouth platitudes about the state of the manufacturing industry but that is all they are going to do because they are more than ever oriented to fight inflation which by default means a high dollar policy.

Candian manufacturing has been doing a reasonably good job at taking advantage of this high dollar to acquire cheaper plant and equipment to lower their costs of production despite the whining that we hear from those that are suffering, in part due to their own mismanagement.

While it would help if Canada's punishing corporate taxes were dropped faster than Harper has scheduled them, I have no problem with unsuccessful manufacturers going out of business (like GM and Ford) while successful ones grow (like Honda and GM)

If I ran the country I would continue a high dollar policy which helps consumers, fights inflation and keeps inpout costs for manufacturers, like energy costs under control. I would help manufacturers become more competitive by dropping corporate tax and I may be even pursuaded to allow for accelerated write downs on capital equipment for certain industries.


Posted by: epsilon | 2008-08-26 5:24:01 PM


The Bank of Canada is a creature of the Federal Government, it was created after the passage of the Bank of Canada Act (http://lois.justice.gc.ca/en/B-2/220710.html) by Parliament in 1935. In 1938 it became a Crown Corporation fully owned by the Government and with a governor appointed by the Federal Cabinet (the appointment process has changed). The Ministry of Finance (which holds all the banks shares "on behalf of Her Majesty in right of Canada") also plays a role in the operation of the Bank. The BoC is also the fiscal agent for the Government of Canada... there are many connections between them, it is simply not the case that "the Bank of Canada has nothing to do with and is completely independent of the Federal Government."

Though the BoC is designed to have independence from the Government in making monetary policy, it cannot be ignored that it is itself a Government entity deriving its power and monopoly on the creation of legal tender from the Federal Government.

Posted by: Kalim Kassam | 2008-08-26 5:24:04 PM

Kalim, anybody can cut and paste out of Wiki.

Read a little deeper.

Posted by: epsilon | 2008-08-26 5:41:33 PM

"If I ran the country"

Posted by: epsilon | 26-Aug-08 5:24:01 PM

I'm listening.

The fact is, she'd probably be better than some we've had.

Posted by: dp | 2008-08-26 6:38:40 PM

"If I ran the country"
Posted by: epsilon | 26-Aug-08 5:24:01 PM
I'm listening.
Posted by: dp | 26-Aug-08

She's not even a citizen.

Posted by: The Stig | 2008-08-26 6:42:13 PM

The Bank of Canada is expanding the money supply at 12%.
Posted by Matthew Johnston on August 26, 2008

What aggregate are you using to determine the rate of expansion?

Posted by: The Stig | 2008-08-26 6:54:15 PM

Coincidentally the Euro is slipping against the US dollar as well. Consumer confidence in Germany is apparently very low.

Posted by: JC | 2008-08-26 9:58:14 PM

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