For a government that has always had a bee in its bonnet about immigration it is delicately ironic that they have parachuted the Canadian, Mark Carney, into the Bank of England to become the new governor. Reports over the weekend suggested that Paul Tucker would be the man for the job, but I would think that the stench of LIBOR investigations (and his involvements with that rather sordid episode in the banking world's history) must have put paid to his chances.
Carney's job running the national central bank will have been easier in Canada than it will be in the UK. Canada is viewed to have had a 'good crisis' and the Bank of Canada was one of the torchbearers for the ultra-loose monetary policy from central banks that we have at the moment.
The make-up of its economy has also helped; it has a natural export base of commodities to fall back upon, while its main export partner in the US is growing at around 2.5% on an annualised basis. The UK has strived to retool its economy towards exports in the recent few years with little success and our main export market is continental Europe; hardly the greatest market place for goods and services at the moment.
The fact is that, from a markets point of view, we can expect that the monetary policy landscape in the near-term in the UK is unlikely to change with the appointment of Dr Carney. Every central bank in the developed world has followed a similar policy of slashing interest rates and promising to keep them lower for extended periods; we see no reason why the appointment of Dr Carney should change that.
One difference between Carney and King is towards the use of quantitative easing (QE). King has been one of the asset purchase scheme's biggest supporters, twice this year voting for an increase when the majority of the Monetary Policy Committee did not. Carney has instead been a bigger fan of what we call 'extended rate guidance'; pre-committing to ultra-low rates for an extended period to assure borrowers that rates will not surprise them anytime soon and encourage spending. King wouldn't pre-commit to what day it was, let alone to the path of rates in the future.
The place where policy is more likely to change is in the regulatory landscape. Much has been made of the need for regulation of the UK banking sector and the governor's job has morphed from a fairly targeted monetary policy job to one of over-arching financial tsar with responsibility over bank stability seen as a new dual-core duty for the top man on Threadneedle Street.
However, the comparisons with the UK and Canadian banking systems are few and far between. Canada's banks are a lot smaller than that of the UK, make up significantly less of the country's GDP and have lot less competition domestically and globally. The difference, without being discourteous or demeaning to the Canadians, is similar to playing a Premiership football match to one in the Champion's League. In short, the Bank of England job is one of the most important in global finance.
That said, the consensus is that the BOE have got the best man available for the job, and it's hard to disagree. Carney's standing as the head of the Financial Stability Board is an obvious arrow in his quiver on the issue of regulation and only served to enhance his credentials. Sterling has reacted positively to Carney's announcement, while the Canadian dollar slipped to a two-week low following the news and the inevitable uncertainty over his successor. I hear Mervyn King's free.
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