Speech

2017 Michel Camdessus Central Banking Lecture Series: Managing Director's Opening Remarks

September 18, 2017

Excellencies, Honored Guests, Ladies and Gentlemen:

Welcome to you all on the occasion of the fourth Michel Camdessus Lecture—our signature lecture series on the role of central banks.

It is my privilege to welcome and introduce the Governor of the Bank of England, Mark Carney, as our speaker today.

1. The Hockey Game

Mark, as a Canadian, please allow me to compare the aftermath of the global financial crisis to something akin to an Olympic level hockey game.

It feels like we are well into the second period and—for now—up in favor of central banks and other institutions.

To be clear, it has been a tough game so far, but important goals have been scored: the crisis was overcome; a deflationary spiral avoided; and—at long last—a broad-based global recovery is underway. A hat trick of sorts. [1]

But the game is not over yet—after all, hockey has three periods! The recovery needs to become further entrenched.

The unconventional and extraordinary policy measures taken during the crisis have yet to be unwound. Policy and regulatory frameworks need to be further refined. And perhaps most importantly, lessons from the crisis need to be learned and remembered.

2. Three Uncertainties

In other words, this will remain a tight game. Especially so as policymakers face high uncertainty in several dimensions. As we sit here in the Coach’s corner today, let me highlight just three—do not worry Mark, I will not be as colorful as Don Cherry ( for those of you who do not know, he is a hockey commentator for CBC Television and a Canadian icon ):

First, we face uncertainty over basic economic mechanisms. What are the precise mechanisms that have underpinned the recovery and how robust is the current upswing?

Also, inflation—both headline and core—remains surprisingly subdued, and mostly below target, despite very low unemployment in some countries, such as the United States and Japan. This raises questions about the so-called Phillips curve that links unemployment to inflation. Has the Phillips curve become flatter?

In addition, there are questions about the level of the equilibrium interest rate in normal times, the so called “natural rate” — has this rate fallen from prior levels? If so, by how much?

What are the policy implications of these possible changes? Do they allow for slower increases of interest rates? And at what level of interest rates is the “normalization” complete? An important question in this regard is also to what extent monetary policy should worry about asset prices and financial stability.

A second set of uncertainties relates to national politics and international relations, which could affect the growth and inflation outlook. One example is the uncertainty over the modalities and economic impact of Brexit. How should policymakers deal with these big question marks?

Third, there is uncertainty over the impact of rapid technological change in areas such as fintech and new electronic payment utilities. More questions still.

Will digital currencies compete with fiat money and reduce the effectiveness of traditional monetary transmission? How would this impact central banks’ ability to influence employment and inflation? How will they safeguard financial stability? To what extent should central banks embrace fintech?

3. The Goalie: Mark Carney

So, with all these challenges in front of us, who would you want in the goal for the remaining play time of our hockey game?

We need an able pair of hands, good reflexes, a cool head, and strategic thinking. Fortunately, we have in our end the former Harvard team goalie—Mark Carney.

We know that he chose not to pursue his “dream job” as a National Hockey League goalie. Instead, he has been guarding a broader net as the Governor of the Bank of England and chair of the Financial Stability Board.

Mark has had a most distinguished career in finance. He spent his early years in the private sector—starting out as a bank teller while in university. He then worked as an investment banker at Goldman Sachs, before joining the public service team.

Let me briefly mention a few things about him as a central banker, leader, and innovator.

Mark is a savvy and thoroughly tested monetary policy maker. As Governor at the Bank of Canada, he deftly navigated the global financial crisis, including with proactive rate cuts—underpinning a stronger recovery in Canada than in most other advanced economies.

And as Governor of the Bank of England, he has advanced the macroprudential policy agenda and led a robust monetary policy response after the Brexit referendum.

Mark is also a global leader and relentless promoter of financial stability—not least in his role as FSB Chair. There he has pushed strongly for an effective Basel III and other regulatory reforms, with his deep understanding of the often-complex issues and his excellent sense of humor allowing him to get consensus on controversial matters and move the agenda forward.

And, importantly, he is an innovator.

Think of the changes he has brought to the institutional design of the Bank of England—to make the institution more flexible and responsive to new challenges. This spirit is reflected in the Bank’s intellectual leadership in such important issues as fintech and climate change.

Wayne Gretzky, the legendary hockey player, famously said: “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

Put simply, Mark is a great player.

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So I am deeply honored, Mark, that you have accepted our invitation to deliver the fourth Michel Camdessus Lecture.

All of us here look forward to hearing your thoughts on monetary policy and central banking.

I also look forward to engaging with you in a conversation about the major challenges facing today’s central banks, after your remarks.

The floor—or should I say, the ice—is yours!