Public Forum on Restoring Bank of Canada Mandate

Canada's central bank is mandated to provide interest-free loans to federal and provincial governments for infrastructure projects, but stopped doing this in 1974.

By Brent Patterson
Published June 01, 2016

The Council of Canadians Hamilton chapter is organizing a public forum about a legal challenge now underway on the role of the Bank of Canada.

The forum, co-sponsored with the Canadian Union of Postal Workers (CUPW) and the Congress of Union Retirees of Canada (CURC), will feature Ann Emmett, the chair of the Committee for Monetary and Economic Reform (COMER) and Rocco Galati, a lawyer now working with COMER.

As CBC has reported:

Rocco Galati has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending federal and provincial governments interest-free money for infrastructure. [...]

The Bank of Canada was set up in 1935 in the wake of the Great Depression to provide a means for settling international accounts and to provide interest-free loans to government to finance infrastructure investments.

Projects like the St. Lawrence Seaway and the Trans-Canada highway were funded in this way, and the central bank also underwrote Canada's Second World War effort as well as the building of hospitals and universities.

But as the article notes, "In 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements (BIS), a kind of central bank of central banks."

The Toronto Star explains, "Headquartered in Switzerland, the BIS is an organization that brings together the central banks from 60 countries to co-operate in the promotion of international monetary and financial stability. Canada joined in 1970."

Author Murray Dobbins comments:

After nearly 40 years of this incredibly productive use of publicly created credit, unprecedented economic growth and increasing income equality, international finance got its chance to launch the free market counter-revolution against democratic governance. [...]

[Milton] Freidman argued that stagflation was the direct result of irresponsible governments issuing too much money or borrowing recklessly from their central banks and sparking inflation. [...] The rationale was thin from the start: Central bank borrowing was and is no more inflationary than borrowing through the private banks.

Dobbin argues, "The effect of the change was to effectively take a powerful economic tool out of the hands of democratic governments." And as retired University of Windsor professor George Crowell has written for the Canadian Centre for Policy Alternatives, "Each year, governments across Canada now pay some $60 billion in interest on their debts – interest payments that need not be incurred."

A legal challenge related to this was launched several years ago.

The Toronto Star article highlights:

COMER contends the Bank of Canada, a publicly owned national financial institution created in the Great Depression, is mandated to provide debt-free support for public projects undertaken by federal, provincial and city governments. Not doing so has deprived Canadians of the benefits of larger infrastructure investments, COMER alleges.

Galati argues that private banks lending to the government contravenes the act that established the central bank. CBC notes, "[Galati's] argument is that private banks are dictating the terms of Canadian debt, usurping the role of the Bank of Canada."

In March 2015, the Toronto Star reported, "The courts have said Galati can proceed with an amended statement of claim." And in October 2015, a Federal Court judge removed another obstacle to the case moving forward. Galati contends, "The case is on solid legal and constitutional grounds."

Dobbin observes:

Of all the destructive elements of the so-called Washington Consensus (the name given to the free market counter-revolution launched in the mid-1970s) this one can actually be challenged in court.

Free trade deals, tax cuts for the wealthy and corporations, privatization, the gutting of social programs, sweeping deregulation - all these either have been or would be deemed by the courts to be the purview of the legislative branch.

But the very first initiative in this 40-year assault on democracy may actually have breached the law. And the courts seem willing, so far, to agree that this possible breach has to be explained and justified.

The public forum on this legal challenge will take place on June 2 at 7 pm at Hamilton City Hall.

This article was first published by the Council of Canadians.

Brent Patterson is the political director of the Council of Canadians.

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By Jmonroe (registered) | Posted July 29, 2016 at 22:13:21

Unfortunately, much of the story that COMER's lawsuit is based on is fiction. COMER has lost all four times this has been before the court. Nothing happened in 1974. The Bank of Canada continued to hold government debt and the government continued to borrow from a variety of sources, including the Bank of Canada, private banks, individuals, insurance companies, and pension funds. Cansim series 176-0010 from Statistics Canada shows, among other things, how much federal debt the Bank of Canada held by month back to 1935. The amount kept growing through 1974 and is still growing. It is over $95 billion now. The Bank of Canada never lent significant amounts to provinces or municipalities.

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