James Coyne, Bank of Canada Head During Policy Crisis, Dies

Bank of Canada Governor James Coyne
James Coyne, governor of the Bank of Canada from 1955 to 1961, died on the evening of Oct. 12, the Canadian Press reported. He was 102. Source: Bank of Canada via Bloomberg

James Coyne, governor of the Bank of Canada during one of the central bank’s most tumultuous periods, died on Oct. 12, the bank said today in a statement. He was 102.

Coyne’s son, journalist Andrew Coyne, confirmed the death yesterday on Twitter.

James Coyne led the Bank of Canada from Jan. 1, 1955, to July 13, 1961, when he quit over disagreements with Progressive Conservative Prime Minister John Diefenbaker on monetary policy and the governor’s pension. The so-called Coyne Affair led to a policy review that improved coordination of the central bank, government and the financial system.

“The Coyne Affair arguably represents the greatest institutional crisis ever faced by the Bank,” Wilfrid Laurier University economics professor Pierre Siklos wrote in a 2007 paper. “The Minister of Finance and the Governor would end up talking, whether in public or in private, at cross-purposes, the former contradicting earlier positions in the name of political expediency, the latter seemingly trespassing in fields normally reserved for ministers.”

Born July 17, 1910, in Winnipeg, Manitoba, James Elliott Coyne was a Rhodes Scholar at the University of Oxford and joined the central bank’s research department in 1938. He left the next year to work in other posts such as the Foreign Exchange Control Board and Canada’s embassy in Washington. He helped draft the Hyde Park agreement between U.S. President Franklin Roosevelt and Canadian Prime Minister Mackenzie King in 1941 to coordinate production and trade during World War II.

Wartime Service

Like fellow former governor Gerald Bouey, Coyne served in the country’s air force during the war, from 1942-44. He returned to the central bank, as an assistant to then-Governor Graham Towers and as deputy governor before becoming the second person to hold the top job.

Coyne and his wife Meribeth had two children together after their 1957 marriage -- Andrew and actress Susan. His wife was a widow with three children from a prior marriage, according to the Manitoba Historical Society.

As governor, Coyne made public comments about the dangers of budget and current-account deficits while Finance Minister Donald Fleming made conflicting statements about who had final responsibility for monetary policy. Coyne went from giving no public speeches between June 1957 and October 1959 to 14 of them between November 1959 and June 1961.

‘False Alternatives’

“There are those who sometimes set out the false alternatives of either full employment with inflation, or stable prices with a high level of unemployment,” Coyne said in a January 1961 speech. “No person in any position of responsibility could possibly subscribe to that doctrine.”

The governor’s commitment to inflation control came in part as the economy boomed through 1959. Demand for credit helped drive the bank rate to a record 6.41 percent in August of that year, up from 1.23 percent in July 1958, according to a biography by former central bank official James Powell.

Coyne kept the money supply little changed for two years starting in late 1958, even as unemployment rose to the highest since World War II and the Canadian dollar’s appreciation curbed exports, Powell wrote. The government responded to signs of economic weakness by passing a special budget in December 1960, around the time a group of economists published a letter saying Coyne should be fired.

‘Policy Error’

“His view that the high prevailing rate of unemployment was primarily structural and hence would not respond to lower interest rates was a policy error,” Powell wrote in the biography.

The economy’s performance through the whole of Coyne’s tenure was about the same as in other eras, Powell wrote. Tracking the slowdown was complicated by other changes including a postwar shift to a manufacturing-based economy fueled by immigration and the evolution of money markets.

Cabinet ministers of the day were convinced that Coyne was to blame for the slowdown, according to notes from a then-secret March 1961 cabinet discussion.

It was partly the fault of the Governor himself if the Canadian public was making monetary policy into a whipping boy, the notes said. Coyne also gave the impression he was openly challenging the government, according to the memo.

Tensions between Coyne and the government escalated after the bank’s board of directors raised the governor’s pension to C$25,000 from C$12,000. The increase added to a salary of C$50,000 that was “several times greater” than pay for members of Parliament or the prime minister, and came at a time when officials had asked Canadians for spending restraint, according to the Siklos paper.

‘An Adversary’

“Diefenbaker used the pension issue as a convenient excuse to move immediately against an individual who was widely perceived within the government as an adversary,” Powell wrote.

After privately asking him to resign in May 1961, seven months before his term ended, the Diefenbaker government in 1961 passed a 25-word bill in the House of Commons declaring the governor’s post vacant. The Liberal-controlled Senate rejected the bill after testimony by Coyne, who then resigned.

Canadians also backed Coyne in the wider dispute, with a Gallup poll showing 60 percent supporting him versus 9 percent backing the finance minister, according to the Powell biography. Coyne was named newsmaker of the year by Canadian Press and Diefenbaker lost his majority government in an election the next year.

Policy Independence

Coyne’s replacement, Louis Rasminsky, took the job after pressing the government to define the roles for setting monetary policy, according to “By All Accounts,” a history published by the central bank. Since then, the bank has implemented policy independently, although the government has the right to issue a written directive saying what policy it wants. No such directive has ever been issued.

The Coyne Affair helped trigger the 1964 Porter Commission, which ratified Rasminsky’s requests and also led to deregulation of commercial banking years before similar moves in the U.S. and other countries.

The idea of making price stability the key anchor of monetary policy took formal shape in 1991, the start of public agreements with the central bank and the government to set inflation targets.

“Mr. Coyne’s legacy has profoundly influenced all of us who work at the Bank, and has made it a stronger and more accountable institution,” Bank of Canada Governor Mark Carney said in today’s statement from the central bank.

Bridge, Crosswords

Coyne had another battle after leaving the central bank that echoed his experience in public service. He was ousted from the board of directors at the Bank of Western Canada after refusing to resign from the institution he helped found in 1964. The bank was liquidated before it became fully operational, according to the Powell biography.

A Winnipeg Free Press interview around Coyne’s 100th birthday found him still playing bridge, reading books and filling out newspaper crossword puzzles.

Bank of Canada officials flew to Winnipeg before Coyne’s 95th birthday in June 2005 to interview him about the institution at the time and the dispute that cost him his job.

“My speeches were viewed as attacks on the government, which I didn’t intend them to be,” Coyne said, according to a transcript of the 2005 discussion. “Diefenbaker thought I was a convinced Liberal for some reason. But I wasn’t.”

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