According to the 2000 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC), Canada's monetary policy transparency practice is fully consistent with the IMF's monetary policy transparency code. This evaluation is reaffirmed and further buttressed by the IMF's 2005-2008 Article IV Consultations with Canada, as well as current self-assessments by the Bank of Canada (BoC). For instance, the 2008 IMF report lauded Canada for finding creative ways to further strengthen its already enviable monetary policy transparency regime, noting that the BoC's current transparency efforts have been effective in preparing markets for recent shifts in policy stance brought about by market uncertainty due to a slowdown in the U.S. economy. The BoC publishes a wide range of reports, and virtually all are available online, including the quarterly Monetary Policy Report (MPR). The 2008 IMF report commends the BoC for increasing the discussion of risks around the forecast in the MPRs and for expanding the range of issues covered in speeches given by members of the BoC's Governing Council. However, the report also points out that the BoC does not publish minutes of Council meetings, relying instead on speeches by members to convey information to the market. The IMF states that these speeches represent a uniform Governing Council public view because they are made by the BoC governor or subordinates who report directly to him. The BoC counters that publishing minutes would have a negative impact on member candor and could jeopardize the Governing Council's composition and legal framework.

General Overview

The 2000 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) concludes that Canada is fully consistent with the IMF monetary policy transparency code in all four principles, possessing a sufficiently transparent process of formulating and reporting all monetary policy frameworks, instruments and targets through speeches and periodic reports, amongst other media. As in most countries, public confidence in a credible central bank is crucial to the inflation-targeting regime framework working efficiently. Thus, according to the 2008 IMF report, the Bank of Canada (BoC) considers transparency a strategic operating principle and communication efforts are constantly being improved. Today, the BoC reports its progress in quarterly, semi-annual, and annual monetary policy reports, all of which are published on its website. Changes in policy frameworks, such as an adjustment in the band for overnight interest rates, are promptly disclosed, replete with explanations and appropriate projections. Also, Canada subscribes to the IMF's Special Data Dissemination Standard (SDDS) and meets its specifications for the coverage, periodicity, and timeliness of monetary data. In other words, the BoC provides timely and sufficient coverage of daily, weekly, monthly, quarterly, and annual data related to the monetary sector.

The roles and objectives of the BoC, as the independent overseer of the day-to-day handling of monetary policy, are clearly delineated in preambles to the Bank of Canada Act. These responsibilities include regulating currency and credit and controlling the external value of the Canadian dollar. The goal of Canadian monetary policy is to enhance the living standards of all Canadians by pursuing low and stable inflation. The BoC does this by keeping the rate of inflation within a target range established jointly with the government. Since 1995, that target range has been between 1 and 3 percent.

While commending the BoC for increasing the discussion of risks around the forecast in the BoC's Monetary Policy Report (MPR) and for expanding the range of issues covered in speeches, the 2008 IMF report also suggested possible innovations based on best practice at other central banks, such as including the projected path of interest rates in the forecast, publishing minutes and "increasing the use of probabilities of outcomes or alternative scenarios to illustrate risks around the forecast" (p. 15). The report also points out that the BoC does not publish minutes of its Governing Council meetings, choosing instead to use speeches by Council members to communicate with the market. The IMF report concludes that these speeches represent a singular Governing Council public view because they are made by the BoC governor or subordinates who report to him. The BoC responds that publishing minutes would have a negative impact on member candor and could jeopardize the Governing Council's composition and legal framework. The Bank insists that more substantive MPRs and speeches represent sufficient communication to the markets.

The 2000 IMF ROSC states the BoC performs its duties with full accountability and assurances of integrity. For instance, according to its website, the BoC governor is mandated by law to appear before parliamentary committees, including after the publication of the MPRs and the Annual Report. Section 28(1) of the Bank of Canada Act requires that the BoC's financial statements, which are prepared according to Canadian GAAP, be scrutinized by external auditors (currently Ernst & Young and PricewaterhouseCoopers), and the audit report is contained in the BoC's Annual Report and is submitted to the Minister of Finance.

The 2008 IMF Article IV Consultations with Canada states that the BoC has recently shifted its monetary policy from a tightening to an easing regime in response to the evolving balance of risks associated with a projected slowdown for the U.S. economy. Historically, the report considered Canada's inflation targeting framework successful, noting that it has brought down inflation and helped to anchor expectations. The current monetary policy regime is bolstered by the BoC's transparency efforts, which are thorough and improving.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

FC

According to the IMF's 2000 ROSC, Canada is fully consistent with the IMF Monetary Policy Transparency code regarding the clarity of roles, responsibilities and objectives of central banks. The ROSC states that the BoC is independent by virtue of the governing Bank of Canada Act, which specifies the BoC's objectives and duties as overseer of the day-to-day handling of monetary policy. As confirmed by the BoC 2008 website, the goal of Canadian monetary policy is to enhance the living standards of all Canadians by pursuing low and stable inflation. The BoC's primary preoccupation is to keep the rate of inflation, which is measured by the annual rate of increase in the consumer price index within a target range established jointly with the government. Since 1995, the target range has been between 1 and 3 percent. The BoC Act clearly defines the institutional relationship between monetary and fiscal operations in Canada, with the BoC acting as the government's fiscal agent. The BoC intervenes in foreign exchange markets, and the results of such interventions (i.e. changes in foreign exchange reserves) are published monthly. The BoC prepares its financial statements in compliance with Canadian GAAP, and remits its entire profit to the government annually. The BoC acts with considerable independence primarily because it is not a government department. So, for instance, the Governor and Senior Deputy Governor are appointed - with the approval of the Cabinet - by the BoC's Board of Directors and not by the Government of Canada. The Deputy Minister of Finance has a seat on the Board of Directors but does not have a vote. The BoC website notes that "the Bank submits its expenditures to its Board of Directors. Federal government departments submit theirs to the Treasury Board. Bank employees are regulated by the Bank itself, not by federal public service agencies." Finally, the BoC's books are audited by external auditors (currently Ernst & Young and PricewaterhouseCoopers) appointed by Cabinet and recommended by the Minister of Finance, not by the Auditor General of Canada.

Open process for formulating and reporting monetary policy decisions.

FC

The 2000 IMF ROSC observes that Canada is fully consistent with the IMF Monetary Policy Transparency code regarding an open process for formulating and reporting monetary decisions, adding that Canada has a sufficiently transparent process for formulating and reporting all monetary policy frameworks, instruments and targets through speeches and periodic reports, amongst other media. As in most countries, public confidence in a credible central bank is crucial to the inflation targeting regime framework working efficiently. Thus, according to the 2008 IMF Article IV Consultations with Canada, the BoC considers transparency a strategic operating principle and communication efforts are constantly being improved. The BoC reports its progress in quarterly, semi-annual, and annual monetary policy reports, all of which are published on its website. Changes in policy frameworks, such as an adjustment in the band for overnight interest rates, are promptly disclosed replete with explanations and appropriate projections.

While commending the BoC's commitment to increasing the transparency of its decision-making process, the 2008 IMF report also suggested possible innovations based on best practice at other central banks, such as including the projected path of interest rates in the forecast, publishing minutes and "increasing the use of probabilities of outcomes or alternative scenarios to illustrate risks around the forecast" (p. 15). The report also lauded Canada for using a gradual approach to improved transparency since these changes are difficult to undo, particularly commending the BoC for increasing the discussion of risks around the forecast in the BoC's MPR and for expanding the range of issues covered in speeches. However, the consultation states that, since the BoC does not publish minutes, the speeches represent a uniform public view because they are made by the BoC governor or subordinates who report directly to him. The Bank's official position on publishing minutes is that doing so would have a negative impact on candor and could jeopardize the Governing Council's composition and legal framework. The BoC insists that increasingly substantive MPRs and speeches given by members of the Governing Council represent sufficient communication to the markets. The 2006 IMF Article IV Consultations with Canada suggested that the BoC provide greater detail on assumptions and risks, particularly on those "fixed action dates" that were not associated with an MPR. At the time, the BoC responded that it preferred not to release detailed forecasts of, particularly exchange and interest rates, because markets could misinterpret such forecasts as targets.

Public availability of information on monetary policy.

FC

According to the 2000 IMF ROSC, Canada is fully consistent with the IMF Monetary Policy Transparency code pertaining to public availability of information, adding that Canada subscribes to the IMF's SDDS and meets its specifications for the coverage, periodicity, and timeliness of monetary data. In other words, as confirmed by the BoC website, the Bank provides timely and sufficient coverage of daily, weekly, monthly, quarterly, and annual data related to the monetary sector. Perhaps most importantly, the BoC provides this information through a variety of publications available to the public, including the Monetary Policy Report to the Bank of Canada Review. The BoC publishes its balance sheets, weekly, monthly and annually, and the balance sheets contain aggregate information on all lending to the banking sector and government. All publicly available information on monetary policy is published online.

Accountability and assurances of integrity by the central bank.

FC

The 2000 IMF ROSC notes that Canada is fully consistent with the IMF Monetary Policy Transparency code regarding accountability and assurances of integrity by the central bank. The ROSC adds that the BoC behaves with full accountability and assurances of integrity. For instance, according to its website, the BoC governor is required to appear before parliamentary committees, including after the publication of the MPRs and the Annual Report. Section 28(1) of the Bank of Canada Act mandates that the BoC's financial statements, which are prepared according to Canadian Generally Accepted Accounting Principles, be scrutinized by external auditors (currently Ernst & Young and PricewaterhouseCoopers), and a copy of every audit report is contained in the BoC's Annual Report and is submitted to the Minister of Finance. The BoC's Board of Director's Audit Committee performs all internal audits. The Bank also includes its operating income and expenditure totals in its annual financial statements. Standards guiding the conduct of employees regarding personal financial affairs are published, and Bank employees are regulated by the Bank itself, not by federal public service agencies, further assuring accountability.