By Michael O’Neill
Alexandre Dumas, the 19th-century author of “The Three Musketeers” would make a terrific 21st-century central banker. He can’t count either. His classic tome is really the tale of four musketeers.
The tale of the “Three Misrepresent-ateers” is mis-named as well. That’s because instead of three, there are multitudes of like-minded stewards of global economies.
They even have an exclusive club called the Group of Ten (G-10).
The G-10 is a group of nations which consult and co-operate on economic, monetary, and financial matters. That group can’t count either. There are eleven member countries in the G-10 (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States).
The latest G-10 meeting for Finance Ministers was November 30, 2020, and the press release stated they “endorsed a coordinated approach to mitigating Covid-19 risks to the global banking system.” They tasked their Basel lll Committee, which has 45 central banks as members, with “continuing to pursue a coordinated approach in responding to the crisis, to preserve a global level playing field and to avoid regulatory fragmentation.”
In keeping with the numerically-challenged theme, the Basel Committee has 45 members plus another 9 observers. Nothing is what officials say it is.
The G-10 statement agreed to a “coordinated approach”, and they are coordinating. The monetary policy statements from the Bank of Canada (BoC), European Central Bank (ECB), and the Federal Reserve (Fed) on January 20, 21, and 27, respectively are so similar, they could be copies.
The BoC wrote “the Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.”
The ECB said “the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon”
The Fed was more verbose but echoed those sentiments.
It said the Committee: “decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
In literary circles those statements would be considered plagiarism.
But that isn’t the issue. The question is “who is really managing Canadian monetary policy?
It certainly isn’t the Bank of Canada. Tiff Macklem joined the global cabal of central bankers in June 2020, making him the “new guy,” much to the delight of the Bank of England’s Andrew Bailey who joined two months earlier. The majority of that Group of Eleven has been together for at least six years. By all descriptions, Mr Macklem is a “nice guy”, so he is unlikely to get the cold shoulder treatment experienced by Donald Trump at recent G-7 meetings. However, it is difficult to believe that Tiff has a lot of input into the crafting of G-10 statements.
The similarity of the three monetary policy statements ensures that the BoC words would not qualify for a “Product of Canada” label (98% Canadian content). Fortunately, the statement is in both official languages qualifying it for a “Made in Canada” label. (51% Canadian content)
The similarities do not stop with monetary policy statements. Central Bankers want to modify their mandate to include addressing climate change.
ECB President Christine Lagarde said on January 25 that because of a new willingness by politicians to transition to a carbon-neutral economy, the action is a source of transition risk which needs to be reflected in their policy framework.
She claims her desire for a bigger mandate is not “mission creep, it is simply acknowledging reality.
The BoC’s Tiff Macklem is also not advocating “mission creep” either, but his November 17, comments were eerily similar to Ms Lagarde’s. He said “Climate change and the transition to low-carbon growth will have profound impacts on virtually every sector of the economy in the decades ahead. So, to fulfill our monetary policy remit, we need to understand the implications of climate change for economic growth and inflation.”
Cynics would suggest that Ms Lagarde and Mr Macklem should just invest in a thermometer.
The highly coordinated G-10 monetary policy actions are evident in FX markets as well. Last year, former President Trump often complained that the US dollar was too strong.
Fed Chair Jerome Powell must have listened because the US dollar dropped against the major G-10 currencies, thanks to the Fed’s low interest rates-“not forever-but a very long time”-policy.
Canada is not alone in having monetary policy crafted elsewhere, and then assembled domestically. It is the way of the world. The “Three Misrepresent-ateers” are not evil. They are merely a trio of mandarins in an elite global bureaucracy that is steering your world in the direction they choose.