Governor Mark Carney

On October 4 2007 the Board of Governors announced that Mark J. Carney had been selected to succeed current Bank of Canada Governor David Dodge. Finance Minister Jim Flaherty has confirmed the appointment and Carney will officially take up his new post when Dodge leaves the Bank on January 31 2008.

Born in the Canadian Northwest Territories in 1965, Carney will be the youngest head banker of any of the G7 nations. Despite this fact, he brings an impressive background to the portfolio having received a Bachelor’s degree in Economics from Harvard University followed by Masters and Doctorate degrees from Oxford.^[1]

Carney initially joined the Bank of Canada in 2003 as a Deputy Governor when he was recruited from global investment firm Goldman Sachs. In fact, he was approached by David Dodge himself and this has some analysts suggesting that Carney, like Dodge, shares the same inflation-fighting outlook.^[2]

Less than two years later however, Carney left the Bank and transferred to the Finance Department and it was while serving as the Senior Associate Deputy Minister of Finance that Carney was selected to be the next Governor of the Bank of Canada. Carney’s appointment marks the second consecutive time that the Board of Directors has gone outside the Bank’s Governing Council to fill the top position.

There is a hint of controversy with Carney’s appointment as some insiders suggest that Senior Deputy Governor Jenkins was the obvious choice to succeed Dodge. Jenkins joined the Bank in 1972 and has held several positions culminating with his being named to the number two position in April, 2003. Given Jenkins’s long history of service and the integral role he has played in shaping the Bank into its present form, observers would not be out of line in wondering if the Board is looking to make a change in the direction of the Bank.

For now at least, Carney does appear to be following the current game plan as he is on record stating that he believes the Bank’s priority lies with maintaining “low, stable, predictable inflation” in line with the current inflation target agreement between the Bank of Canada and the Government. This agreement – which compels the central bank to maintain inflation in a range between one and three percent – is in place until 2011.^[3] Carney will only be in the third year of his seven-year term when the inflation target monetary policy is revisited so if a change is in the works, this could provide the opportunity to make a fundamental change to the monetary policy.

Update December 6, 2007 – Carney Addresses the Standing Committee on Finance

Mark Carney addressed a group of Canadian parliamentarians on the afternoon of December 5, 2007 at the request of the elected officials. In his opening address he made several interesting comments that merit addition to this brief biography on the man who will officially become Governor of the Bank of Canada on February 1, 2008.

In his opening address, Carney noted that he was not yet the Governor nor was he even a member of the Governing Council. His point being of course that because he was not involved in the recent decision by the Governing Council to drop the overnight target rate by a quarter point, there was nothing new he could add to the Bank’s announcement from the day before.

While on the topic of the recent increase in the Canadian dollar and the negative impact this has had on exports to the U.S. in particular, Carney spoke explicitly against the idea of pegging the Canadian dollar to the U.S. dollar as some members of parliament have proposed. There have even been suggestions that adopting a common North American currency similar to the Eurozone countries would solve trade issues brought on by a fluctuating exchange rate. For those advocating such an approach, Carney was most blunt:

“In my opinion, it would be a mistake to do so (peg the currencies). It would mean that, de facto, Canada would adopt U.S. monetary policy, despite the reality that the structures of our economies are very different, and as a consequence, often require different types of adjustments in response to global developments.”^[4]

To back-up his comments, Carney pointed to the very successful track record Canada has achieved since adopting an inflation target policy in 1991. Despite several shocks to the Canadian economy since then, Canadian output has expanded, on average, three percent each year and unemployment remains lower than most years prior to moving to an inflation rate target policy. Key to this success according to Carney, is a floating exchange rate that allows Canada to implement an independent monetary policy, and while the Bank does not have an exchange rate target for the dollar, the Bank does want to know what forces are causing the exchange rate to fluctuate.^[5]

Another point of interest to currency traders from Carney’s address deals with research the Bank is conducting on the pros and cons of adopting a price-level target for measuring the effectiveness of policy changes. This would replace inflation-targeting but could not be adopted until the current agreement between the Bank of Canada and the government expires in 2011.

In the final analysis however, this may be nothing more than a research project as Carney made it clear that it would require very “compelling evidence” to change the current methodology that “has proven so successful over the past 15 years”.^[6]

Related Links

Bank of Canada

Former Governor David Dodge (2001-2008)

References

1. ↑ Bank of Canada website
2. ↑ Financial Post - October 4, 2007
3. ↑ Financial Post - October 4, 2007
4. ↑ Mark Carney - Statement to the House of Commons Standing Committee on Finance - December 5, 2007
5. ↑ Mark Carney - Statement to the House of Commons Standing Committee on Finance - December 5, 2007
6. ↑ Mark Carney - Statement to the House of Commons Standing Committee on Finance - December 5, 2007