Bank of Canada Deputy Governor Talks About Monetary Policy Innovation, Mentions Bitcoin

According to the Vancouver Sun, the Bank of Canada has been conducting financial crisis research for three years, summarizing the lessons learned since the 2008 financial crisis in order to prepare for possible future turmoil.

Carolyn卡洛琳•威尔金斯, senior deputy governor of the Bank of Canada, said the bank's exploratory program, described as an "ambitious research agenda," will study how other countries handled the 2008 subprime mortgage crisis.

Wilkins said it is important to innovate current financial instruments because Canada's economic growth potential was greatly weakened after the 2008 financial crisis.

Wilkins believes that if the Bank of Canada continues to set 2% as its inflation target, then in the current environment, the policy rate is likely to fall to zero.

A five-year inflation-control pact between the Bank of Canada and the federal government will continue after it expires next year.

Wilkins said in a speech on Friday at the Rotman School of Management and the Munk School of Global Affairs in Toronto:

“The current inflation targeting framework has worked well, so the bar for change is high, but history tells us that you can’t use a fixed formula to deal with problems indefinitely.”

“A key challenge facing central banks right now is that conventional monetary policy has almost reached its limit in many countries, with policy rates at or below zero.”

Wilkins said the Bank of Canada has begun to carefully study the innovative monetary policy tools used by central banks around the world, including asset purchase programs, quantitative easing and negative nominal interest rates.

The Bank of Canada's exploratory program also aims to find ways to respond to global changes.

Wilkins singled out alternative payment methods such as Paypal and the growing popularity of the sharing economy, such as Uber, as examples.

Wilkins also mentioned virtual currencies:

“We have to face the fact that many people are using electronic money, even a non-government-issued currency like Bitcoin.”

“All of this could breathe new life into the global monetary order, especially as central banks struggle to conduct monetary policy.”

Wilkins said Canada has a long history of monetary policy innovation. In 1950, Canada adopted a floating exchange rate system, becoming the first industrial country to do so.

With inflation and interest rates climbing for years, the Bank of Canada introduced an inflation-targeting regime in 1991, becoming the second central bank to do so, a mechanism that Wilkins said many experts viewed as unworkable.

“However, inflation targeting has proven to be feasible, and through this mechanism, central banks can avoid directly facing the difficult problem of global financial crises caused by the accumulation of financial risks.

“The 2008 financial crisis was a stark warning to us that we must resist bias and complacency.”

The Bank of Canada will also increase investment in updating its own economic models, with the goal of helping the federal government better understand what is the best mix of decisions - whether monetary, fiscal or macroprudential.

Original article: http://www.vancouversun.com/business/looks+innovate+conventional+monetary+policy+stretched+limits/11514450
By ANDY BLATCHFORD,
Translator: printemps
Editor: printemps
Source (translation): Babbitt Information