We are joined by Mike Moffatt, an Assistant Professor in the Business, Economics and Public Policy group at the Richard Ivey School of Business, to discuss the news that Bank of Canada governor Mark Carney will head the Bank of England.
Thank you for having me! I'm still trying to digest this news. There have been rumours floating around for some time that Carney may be moving to a larger stage, but I don't think anybody saw him leaving for the BoE today!
I guess, maybe most importantly for us, what will this mean for Canada to lose a BofC governor like Carney?
It's always a blow when someone of Mr. Carney's talents move on. Fortunately Canada's in a relatively stable situation - no interest rate changes are expected any time soon and our banking system is relatively stable.
There are some concerns, of course, including household debt ratios and housing prices. Although Carney will be staying on for 6 months, I can't imagine he'll do much on those fronts. That may mean these issues are dealt with through the government instead, but that's pure speculation on my part. (Which is about all we have to go on at the moment).
I know the news has only just broken, but have you heard any interesting reaction among your colleagues and contacts that would be interesting to note for our readers?
Reaction has been two fold. Initially shock. If anyone saw this coming, it's nobody I'm in regular contact with. We're all in shock. The second part is speculation on who will replace Carney at the Bank of Canada. Canada's fortunate that we have a number of highly qualified individuals.
As you can imagine, I've been flooded with phone calls, BBMs and e-mails from colleagues. I saw someone on Twitter refer to this as the monetary wonk version of the Gretzky trade. That's not too far off.
And also puts it into perspective for some of readers who may not follow economic news in Canada as closely!
We have some reader questions coming in now, so I'll post a couple of those.
If anyone can afford it, Canada can. The Governor has many roles, from making interest rate target decisions in order to moderate economic growth, to ensuring the stability of the financial system. For the former, there shouldn't be too many tough decisions to make in the short-term, though at some point rates will go up and it will be important to time it correctly. Canada's financial system is among the most stable in the world, so there's not too much worry there (famous last words, I know).
I don't see any big changes in the next few years. Two areas that Carney focused on more than I think the 'typical' Governor were household debt and housing prices. I'll be curious to see if the new person continues this focus, or sticks to more 'traditional' monetary policy concerns. That'd be one smaller change. Another one will be how comfortable the new Governor is in dealing with the media. Carney was quite comfortable in front of a camera (and I mean that as a complement).
In a similar vein, what do you think will be the biggest challenge facing Mr. Carney’s successor?
Timing when to raise rates. (In theory the Governor could lower rates, but that's not going to happen). Do it too early, you choke off an economic recovery. Too late and inflation gets out of hand. Of course, this is not a decision the Governor makes by him/herself - there's a whole team of capable people at the BoC. But I see that as being the biggest issue to deal with, assuming Canada isn't hit by some unforeseen economic crisis.
It very well could set a precedent, particularly if he is seen as being successful at the BoE. I actually like the idea that the head of the Fed or the BoE have experience somewhere else first, though it isn't great for Canada if our guys keep getting poached. Of course, we could always do the same to, say, New Zealand, so it's a mixed bag for us.
Which brings up a thought: Glenn Stevens, Governor of Australia's central bank is a University of Western Ontario grad. Could we do to Australia what England did to us?
I'm sure Carney's input will be taken seriously - from all accounts he is highly well respected by both Harper and Flaherty. At the end of the day the decision is the government's, but I have no question they'll actively seek Carney's advice and take it seriously.
Mr. Carney had previously made a big deal of actively denying the rumours he was being looked at by the Bank of England. What do you make of that considering he ended up taking the job?
For what it's worth, the last two Governors of the Bank of Canada (Carney and Dodge) were outside the BoC at the time they were chosen to be Governor. Carney was with the BoC, then spent a few years at Finance, after that was hired as Governor.
Not too much. It'd be hard to do your job if you were simultaneously battling rumours that you may be going elsewhere (even if those rumours were true).
They at least seemed more plausible to me than the rumours he was going to run for Liberal leader.
I don't think it has anything to do with Canada. England is a much, much bigger stage and has far more regulatory challenges.
Specifically, England's financial system needs an overhaul. Carney's experience both at the Bank of Canada and the Financial Stability Board (which I'm told is a position he'll still hold) will be invaluable to the BoE as they restructure their banking system.
If Carney was worried about Canada's economic issues (and we do have them), the absolute last job he'd want is running the UK central bank.
Thanks for taking the time to chat with us today, Mike. Anything to note in closing?
I guess the final issue is - who is going to be the next Governor! It's really hard to say at this point. Tiff Macklem, the BoC's #2 guy is the obvious choice, but they don't always go for the obvious choice. The BoC has never had a Francophone Governor, so we're overdue. Jean Boivin is on a similar career arc to Carney (was at BoC, now at Finance), so he could be chosen. We've also never had a female Governor. Agathe Cote is a deputy at BoC and is both female and Francophone. Or it could be someone completely off the radar. We live in very interesting times.
Indeed we are! Again, many thanks for joining us today to share your thoughts. It's always much appreciated.
Thank you for having me. Always a pleasure!