Bank of Canada takes to Twitter to set the record straight on ‘money printing’ claim

As the Bank of Canada tries to rein in red-hot inflation, the central bank is engaging in another fight: one against misinformation.

In recent weeks, the central bank has been using social media to engage the public in the economy, explaining how inflation works and what it is doing to bring inflation back to its two percent target. However, in its most recent Twitter thread, the bank went beyond explaining the economy and took direct aim at a common attack on its policy decisions during the pandemic.

“#You asked us if we printed cash to fund the federal government. We didn’t,” the Bank of Canada tweeted on August 25, followed by a series of tweets refuting the claim.

While central bank officials typically hold speeches and other events to communicate their thinking and set expectations, Université Laval economics professor Stephen Gordon says their audience has traditionally been smaller than it is today.

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

The current high inflation environment and the politicization of the central bank has led to a broader audience, with more Canadians concerned about rising interest rates and the high cost of living. Along with this heightened interest has also come a level of distrust in the Bank of Canada’s operations and a misperception that it printed money during the pandemic.

Conservative leadership darling Pierre Poilievre has been a vocal critic of the Bank of Canada, vowing to fire Governor Tiff Macklem if he becomes prime minister. Poilievre has not explained how he plans to fire Macklem since the Bank of Canada Act does not give the federal government that power.

He also repeatedly claimed that the central bank printed money to finance federal spending and thus caused inflation.

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

“There’s always been this expression that the bank prints money every time it engages in these types of policies, but that’s not really what happens,” said Jeremy Kronick, director of Monetary and Financial Services Research at the CD Howe Institute.

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

“We buy existing government bonds from banks on the open market. Why? This helped unlock frozen markets at the start of the pandemic. It allowed households, businesses, and governments to access finance when they really needed it,” read one of the tweets.

“We do not print cash to pay bonds,” the thread read.

Sometimes referred to as QE, quantitative easing is a relatively new tool used to keep money flowing when interest rates are already hovering around zero and can’t be lowered any further. It attracted worldwide attention when it was used by the US Federal Reserve after the 2008 financial crisis.

The Bank of Canada first used this policy tool when the pandemic hit to combat the risk of deflation. You bought government bonds from financial institutions using settlement balances, or reserves, which you deposited in financial institution accounts and paid interest. As the bank said, these reserves are not the same as cash.

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

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

While the Bank of Canada’s motivation to speak directly to Canadians and justify its policies is understandable, Gordon says he’s not sure how effective its efforts are given that the central bank doesn’t have much experience in this area.

“They have nothing close to the media arsenal of people who are trying to promote the wrong agenda. So in a sense they are massively outclassed,” she said.

A recent Angus Reid poll found that 46 per cent of Canadians trust the Bank of Canada to fulfill its mandate, while 41 per cent said they do not. The survey found that mistrust was highest among people who had voted for the Conservatives or the People’s Party of Canada.

The online survey surveyed 5,032 Canadian adults and was conducted between June 7 and June 13. It cannot be assigned a margin of error because, according to the generally accepted standards of the survey industry, online surveys do not randomly sample the population.

Looking ahead, the Bank of Canada plans to expand its educational programming on the economy and the role of the bank.

Meanwhile, Kronick says what will ultimately help boost confidence in the Bank of Canada is getting inflation back down to target.

“What matters and what will restore that confidence is for the bank to bring inflation back under control.”

This report from The Canadian Press was first published on August 31, 2022.