A study of the long, rich life of James Elliott Coyne, former governor of the Bank of Canada, provides a perspective on the tumultuous events of Canada?s 20th century through the lens of a man who epitomized the qualities of his generation. His was a life driven by values of personal responsibility, duty, honour and integrity. Coyne was known for his determination and his commitment to what he had determined to be the right path, even when that path proved a difficult one to walk.
Lawyer, military officer, diplomat and central banker, throughout his distinguished career Coyne applied his keen intelligence and unwavering integrity to make a lasting impact.
Coyne joined the bank in 1938, three years after its establishment, was deputy governor from 1950 to 1955 and served as its governor from 1955 until 1961. Those economically and politically difficult years marked a period during which the central bank was beginning to assume a more prominent role in Canada?s economy ? a role that was being defined as it was being played.
Coyne?s tenure as governor resulted in three important and enduring legacies that directly influence the bank?s monetary policy framework today: low and stable inflation as the paramount objective of monetary policy; a floating and flexible Canadian dollar; and the enshrinement of operational independence for the bank, with clearly articulated responsibilities of both the bank and the federal government in the design and conduct of monetary policy. ?In his era, Coyne?s version of monetary policy was novel ? and controversial. During his tenure as governor, the Bank of Canada had little experience with conducting an active, market-based monetary policy. Few central banks did. Nor did the bank have many of the forecasting and policy tools that it needed to fulfill the expanded remit that Coyne envisioned for the institution. The bank?s initial use of market-based instruments for controlling the supply of money in the economy was considered intrusive and inelegant. ?Still, the overall principles of Canada?s monetary policy were forged during his era. If today low and stable inflation is a cornerstone of monetary-policy frameworks around the world, it is in part thanks to Coyne. He believed in price stability, and he believed it was a means to an end; the best contribution a central bank can make to fostering sustainable growth and a high standard of living for citizens. Since it was adopted in 1991, Canada?s inflation-targeting regime ? the logical conclusion of Coyne?s policies ? has been a critical policy anchor through calm and turbulent times, giving the bank an unwavering goal to guide its policy actions, and providing financial markets and the public with a clear means of understanding the rationale behind them. Canada?s flexible inflation-targeting framework focuses on keeping inflation near its 2% target while mitigating volatility in other dimensions of the economy that matter for welfare, such as employment and financial stability.
Coyne worked tirelessly to improve the efficiency of monetary policy. Under his leadership, the bank developed forecasting tools that allowed monetary policy to be forward-looking rather than simply reactive. It developed novel monetary instruments (including a bank rate set at 25 basis points above the auction rate of treasury bills) and fostered deep, liquid financial markets that would serve as an effective transmission mechanism for monetary-policy actions. Coyne also took an initial foray into expanding the bank?s communications with the public, drafting parts of the bank?s annual report himself and giving a series of widely reported public speeches.
Within the bank, Coyne was one of the earliest and most convincing proponents of a flexible exchange-rate regime. Canada was the first industrialized country in the post-war period to experiment with a flexible exchange rate. The decision was harshly criticized by others, including the International Monetary Fund, but the experiment proved a success: An appreciating currency at the time helped to moderate capital inflows and resulting inflationary pressures. With the exception of 1962 to 1970 (when the Canadian currency was once again pegged again to the U.S. dollar), Canada has had a floating exchange rate since 1950 ? one of the longest experiences with a floating currency in the world, and an example to other small, open economies that have adopted floating rates. A flexible exchange rate is now a core element of Canada?s inflation-targeting monetary-policy framework. A floating Canadian dollar plays a key role in the transmission of monetary policy, allows the bank to pursue an independent monetary policy, and helps to absorb shocks to the economy.
These first two legacies are often overshadowed by the third; the outcome of the dramatic controversy referred to as the ?Coyne Affair.? One can only begin to imagine the great personal cost of that stormy episode on Coyne, his family, close friends and his colleagues at the bank. But the legacy of the Coyne Affair was the transformation of the Bank of Canada from an institution closely associated with the Department of Finance and primarily focused on debt management into a monetary authority with clear operational independence. Over the following decades, this model would be adopted by all of the major central banks in the advanced economies.
In the wake of the Coyne Affair, on his last day at the bank, employees presented Coyne with a gold medallion bearing the inscription ?Presented to James Elliott Coyne by his staff for courage and integrity in defence of the office of Governor of the Bank of Canada.? His legacy has profoundly influenced all of us who work at the bank, and has made it a stronger, more capable and more accountable institution.
James E. Coyne was a true public servant. His life was well lived and now, his rest well deserved.
Mark Carney is governor of the Bank of Canada
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