The independence of central banks from the democratic process has been a bedrock of economic policy for decades. The Bank of Canada is no exception, maintaining distance from elected officials to ensure monetary policy is free from political pressures.
However, a clear division between central bank and government could be tested with Mark Carney, former governor of both the Bank of Canada and the Bank of England who’s running for leadership of the Liberal Party and, in turn, the role of prime minister.
His bid raises concerns about how central bank independence might be perceived under a Carney-led government. Could his tenure as a central banker result in the Bank of Canada’s independence being clawed back? After all, he has demonstrated his ability to manage monetary policy at the highest levels.
The answer, if we want to preserve the economic benefits of central bank independence, is clear: the Bank of Canada’s independence must be preserved. And Carney, who has championed the importance of politically neutral monetary policy, would likely agree.