A friendly lunch in Ottawa this week between Mark Carney and Prime Minister Justin Trudeau raises an interesting question: How large will the Bank of England (BOE) governor loom in the search for a successor at Canada’s central bank.
It’s only a coincidence Monday’s meeting took place a few days after Stephen Poloz announced he won’t seek a second term as governor of the Bank of Canada. But Carney either hired or worked with most of the top candidates during the five years he ran the Canadian central bank before taking the reins of UK monetary policy in 2013.
His advice will almost certainly be sought by Trudeau and his finance minister, Bill Morneau, as they weigh who should replace Poloz.
More important, however, may be whether Trudeau sees Carney’s activist tenure at the Bank of Canada as a template for the next governor. Carney was very hands-on, getting involved in many facets of government economic policy, and Poloz’s successor may need the same out-of-the-box leadership skills.
“When confronted with pressing financial stability issues, it is imperative that the governor be credible in the eyes of those they are dealing with,” said Jean-Francois Perrault, chief economist at Bank of Nova Scotia in Toronto. Given the potential for a slowdown or financial emergency over the next seven years, “the government may look for somebody who will be able to assert themselves and command respect like Mark did.”
Early front-runners for the job include Carolyn Wilkins, the Bank of Canada’s current chief deputy governor who was head of the central bank’s financial stability department under Carney.
Another top candidate is Jean Boivin, the head of BlackRock Inc.’s research unit in London and a Carney protege who was brought to the Bank of Canada in 2010 from academia. Tiff Macklem, the dean of one of Canada’s most prestigious business schools, was Carney’s No. 2 at the central bank between 2010 and 2013.
Six years after his departure from Canada, Carney’s superstar status remains intact in the country. The former Goldman Sachs banker is still regarded as one of the nation’s most influential non-elected public servants on economic files.
Mark Carney is another strong Canadian voice calling for international climate action. Today in Ottawa, I congratulated him on his new role as @UN Special Envoy on Climate Action & Finance, and discussed his important work to fight climate change & strengthen the global economy. pic.twitter.com/ouh3a3CkJ9
— Justin Trudeau (@JustinTrudeau) December 9, 2019
He was an adviser to two governments even before he took the helm of the central bank in 2008, where Carney continued to put the Bank of Canada at the center of the government decisions. Canada’s crisis-era finance minister, Jim Flaherty, was heavily reliant on his advice and the two had a close working relationship.
Carney’s subsequent emergence as a key player in the global response to the financial crisis, when he became chairman of the Financial Stability Board and then Bank of England governor, only cemented his clout in Canada — to the point where his name is often floated as a potential future prime minister. Carney, whose term in the U.K. ends in January, will soon take up a United Nations job championing action on climate change in the financial world.
Read more: Why Poloz Found It Hard to Steer the Bank of Canada Home
Poloz, who unlike Carney is a life-long economist with decades of research under his belt, was much more discreet and traditional. He returned the focus back to bare-boned central banking with an emphasis on strong analysis of the domestic economy, and kept his distance from government. Poloz helped keep the Canadian economy growing through uncertain times, but he benefited from a long global expansion that never escalated to the point of a new crisis.
Given the riskier landscape his successor will face, one big change for the next Bank of Canada administration will likely be deepening coordination with government.
Out of Ammunition
With interest rates near historic lows, the Bank of Canada doesn’t have much conventional ammunition to fight a major downturn, a problem faced by most other central banks. That’s aggravated by Canada’s extremely high household debt levels, which will make policy makers even more reluctant to lower borrowing costs.
The end result may be a growing reliance on fiscal policy to manage slowdowns, in coordination with the Bank of Canada in a relationship that could be formalized as early as 2021 when the central bank completes a mandate review.
“It’s pretty clear we are reaching limits to what central bankers can do with conventional instruments,” Perrault said. “That’s going to place a premium on policy coordination. We will need somebody that understands the linkages between monetary and fiscal policy, and how coordination between these policies can and should be executed while maintaining the central bank’s independence.”