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Brazil: Rousseff’s water torture

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September 2012

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Central bank governor of the year 2012: Carney connects with charm and credibility


Bank of Canada governor Mark Carney’s monetary zeal and flexible approach to an inflation-targeting regime have earned acclaim. Now, he is deploying his charm and credibility to re-tool the global banking industry in the teeth of resistance.



When Mark Carney addressed the Canadian Auto Workers union in August, the media waited with baited breath for the first-ever public address by a Canadian central bank governor to organized labour. A bloody showdown between the central bank and embittered union workers, hammered by the strong buck, loomed large.

Instead, defying expectations, the governor lashed out at excess corporate cash reserves and income inequality and cogently dismissed the strength of the Canadian dollar as the principal cause of the country’s weak exports.

With this performance, the governor charmed a hostile audience, and he duly received a standing ovation. His thoughtful exposition on the challenges for the labour market in a globalized economy and the urgency of diversifying export markets away from the US achieved a rare feat. In short, it engendered an apolitical narrative of a central bank in the popular imagination, one that strikes a judicious balance between macroeconomic management and price stability, in line with its mandate – but with a constructive zeal.

This episode makes it abundantly clear that Carney is no ordinary banker-turned-policymaker. The governor has rightly earned acclaim in financial and policy circles thanks to his prudent management of Canada’s economy and financial markets and, since November 2011, his force of intellect, personality and persuasion as chairman of Basle’s Financial Stability Board (FSB), where he is sketching the new face of global finance.


Mark Carney, Canadian central bank governor and Euromoney's central bank governor of the year
Mark Carney, Canada's central bank governor and Euromoney's central bank governor of the year
The epoch-making feature of Carney’s tenure at the Bank of Canada remains his now legendary decision to cut the overnight rate by 50 basis points in March 2008 – one month after his appointment. While Europe raised rates, Carney’s market instincts rightly judged that US market tremors would soon reverberate across globalized financial markets. And when policy rates hit the effective lower bound, the Bank of Canada opted for a non-standard monetary tool with the "conditional commitment" in April 2009 to hold the policy rate for at least one year. Output and employment began to recover from mid-2009, in part thanks to monetary stimulus.

While Carney is rightly credited for his pre- and post-Lehman fire-fighting skills, his flexible approach to an inflation-targeting mandate is no mean feat. After all, inflation-targeting central banks are living in an era when this regime has been thoroughly discredited in the 2008 crisis and chastised as dogmatic, pro-cyclical and anti-growth. But rather than combating the aftermath of a given crisis, Carney deserves credit for his proactive zeal, as in the months before Lehman’s collapse, and most recently, having sounded the alarm over rising household debt levels and property prices in outspoken terms, triggering fiscal redress.

"He has played a more active role in economic affairs than any other central banker in recent Canadian history," says Gordon Nixon, chief executive of Royal Bank of Canada. "He has rightly broadened, informally, the central bank’s mandate and has done so because he has the platform, the economic skills and practical working knowledge of capital markets."

Carney’s pragmatic and transparent monetary strategy has also boosted market confidence over the stability of domestic credit conditions, with a more timely publication of in-depth policy reports. Carney has certainly enjoyed his share of luck in the world’s 10th-largest and commodity-rich economy. Canada is the only industrialized nation where its central bank has assumed a hawkish bias this year, with the economy expected to grow by more than 2% in 2012. According to Euromoney Country Risk, which tracks assessments of 400 economists on sovereign risk across 180 markets, Canada is the only G7 economy with a higher economic score than in the pre-crisis era: 74.4, as of September 2012, compared with 68 in the same period of 2008.

It’s a testament to Carney’s market nous and leadership skills that he now leads the FSB. He is tasked with the challenge of creating a regulatory system that reduces the prospect of another financial meltdown without choking off capital formation in an already depressed global economy. Nixon says: "You have a global banking industry that lacks credibility, a global regulatory regime that lacked credibility and a global political regime that lacked credibility. But Mark brings credibility to this job."

The position of FSB chairman has inevitably made him the target of invective from some leading bankers, and JPMorgan chief Jamie Dimon, in particular, who, reportedly, launched a tirade against Carney last September over extra capital surcharges for global systemically important financial institutions, branding them "anti-American". But Carney has held steady, selling reforms to recalcitrant bankers, attempting to build up the FSB’s enforcement powers, and navigating between competing European and US interests.

Even his detractors believe he is adept at navigating these competing agendas. After all, he is seemingly comfortable with contradictions. Carney’s common touch – he has previously expressed sympathy with the Occupy movement – belies his status as an Oxford and Harvard-educated economist with 13 years’ service at Goldman Sachs. He is outspoken but by no means a self-conscious populist, and is economically savvy, although adept at market-based judgements of regulatory and monetary affairs.

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