Photo: Chris Young The canadian Press
Stephen Poloz will soon be leaving the position of governor of the Bank of Canada, which he has held for seven years.
As is, it seems, a recent tradition, Stephen Poloz delivered last week, at the University of Alberta, a sort of speech to start a few days late, on Wednesday, of his seven-year tenure as governor of the Bank of Canada. Even longer than usual, and devoted, as it should be, to questions we can’t less exciting monetary policy, this speech was still the bearer of a message of first importance going far beyond the small world of central bankers.
Entitled The monetary policy in the face of the unknown, this speech explained how the Bank has finished gradually by admitting that it was a waste of effort to seek a way to correctly predict the future every time. Instead, she is now trying to embrace an approach able to cope with an ” uncertain economic and political extreme “.
In a world where obscure financial products, the fancies of a president, a vagrant or the appearance of a virus in a distant public market may cause chain reactions that will upside down the entire planet, this approach involves, among other things, to be able to detect and distinguish between ” risks “, we can still estimate the probabilities, and ” uncertainty “, where even this estimate is not possible. Once the most likely scenarios established, we move on to the action-based strategies that are flexible enough to be adapted to changing circumstances.
Humility and transparency
“This approach may seem vague and subjective,” admitted Stephen Poloz, but it is unfortunately the only way to be efficient in an uncertain world and complex as ours.
This reality, he continued, we “force” to demonstrate a certain humility in the formulation of policies and to always seek to better understand, to more we inform and clarify the grey areas “. It has also convinced the Bank of Canada to cease its communications, to always do as if she knew already what was going to be the next shot that she was going to play. Rather than, ” to offer false certainties “, we are trying now to present with the maximum “transparency” in its assessment of the factors that led to the decisions, ” while being honest about [their] great uncertainty “.
Such an attitude has the advantage of encouraging market players to not rely only to the Bank and to perform their own analyses, it is argued. Thus, one obtains a greater ” plurality of perspectives on the economic situation “.
Not just good for the Bank
Many will recognize, without a doubt, in this portrait of a world in which we must move forward in spite of a reality that is uncertain and changing, starting by the governments which, since the outbreak of the pandemic COVID-19, to manage as they can in their war health against a virus which one knows little thing, and financial assistance programs developed as. But they are not the only ones. Several companies and organizations also need to, each day, make decisions (sometimes existential) without control all the variables or even have all the necessary information.
The issues that we face today are many and complex, ” observed Stephen Poloz in his speech. How and when the world trade picks up there ? How companies will rebuild the value chains ? What long-term damage the pandemic will do to employment and businesses ? What is the impact of rising household debt and governments ?
But in all cases, the principles of realism, flexibility, humility, transparency and openness to other perspectives, that the Bank of Canada said to try to put in practice, are probably good advice.
As for what the future holds for us, it seems that despite ” losses of output and employment histories “, the canadian economy has avoided the worst and that a return to growth is eminent, explained on Wednesday that the central bank at the end of its last meeting presided over by Stephen Poloz. These forecasts remain, however, “highly” blurred “due to” high uncertainty “, does it not fail to remember.