Mark Carney Appointed as Governor of the Bank of England
02 Dec, 2012
In a move described by Finance Minister Jim Flaherty as “bittersweet”, Mark Carney, the governor of the Bank of Canada (BoC), will be leaving his term in July of 2013 after being named the next Governor of the Bank of England (BoE). This is the first time in the 318-year history of the British Central Bank that a foreigner will fill the head position.
George Osborne, British Chancellor of the Exchequer (Cabinet Minister for Economic and Financial Matters), has been rather public in his efforts to recruit Carney as a replacement for current BoE head, Sir Mervyn King. The Canadian was first approached in February and denied the offer. Carney went on to publicly dismiss rumors that he would be leaving Canada for the UK in an interview with the BBC in August. Nevertheless, on Monday, Osborne announced to British Parliament that Carney would indeed be signing on as the country’s top banker.
Carney is no stranger to the streets of London’s financial district. After earning a Masters and PHD in Economics from Oxford, Carney spent his early career in the private sector as an investment banker for Goldman Sachs out of its UK office before moving back to Canada to serve in the public sector.
While there are a number of reasons Osborne turned to “the colonies” to fill the position, chief among them is the fact that Mark Carney is one of the few central bankers in the world. Unlike the other (notably domestic) candidates considered for the position, Osborne points out that Carney has the unique experience of having successfully run the central bank of a developed nation for several years. Moreover, Canada has recently emerged as a yardstick by which G7 nations now measure their fiscal stability. This is perhaps why Carney will be receiving a reported salary of £624,000 a year; nearly double the salary of the previous BoE head (although Carney is not eligible for BoE pension fund worth nearly £300,000 in annual packages). Carney plans to serve the BoE for five rather than the traditional term of 8 years.
In 2009, under Carney’s direction, the Bank of Canada became the first G7 central bank to introduce a conditional rate commitment, in which policy rates were set for at least one year. In direct contrast with policy norms at the time (including those of the BoE), Canada embraced “unconventional forms of QE” on the international stage. As illustrated in The Bull & Bear’s piece on QE3 in the United States, there are plenty of reasons why conditional commitment was so important for global finance.
There are several other factors that make Carney especially suited for his new position, namely the diversity of his experience. Carney has had success in the private sector, as well as both national and international public sector operations (chair of the Financial Stability Board, and Director of the Bank for International Settlements).
There is little doubt that Carney will have to adjust to an economic climate very different from what he is used to. Robert Peston, the business editor for BBC News, notes that “the UK economy is in much more of a mess than Canada’s [and] the British banking industry is in much more of a mess than Canada’s.” With the last two quarters looking bleak on the heels of newly implemented austerity measures aimed at reducing national debt, rumblings of a recession have reemerged in London.
Moreover, the climate of dissent that is typical in the BoE is not something Carney has been directly exposed to during his time with the BoC. In Canada and the United States, policy changes are implemented as per the decisions of the director, whereas debate and minority voting are common within the BoE where politics are far more fragmented. King has struggled with this, finding himself on the losing end of a 5-4 decision to dismiss his request to print more money in June. This leads us neatly to another point: Quantitative Easing.
While Carney is the first to admit that Bernanke’s monetary policies in the US have been a net positive for the Canadian Economy, he has notably avoided resorting to printing money to keep numbers in the black. Instead, long term commitments to low interest rates and more explicit communication with the private sector have helped Carney achieve such success during his tenure – policy approaches he is expected to bring with him to his new post.
Back at home, Bay Street will likely lament the loss of arguably the world’s top central banker. Ian Nakamoto, a research director at MacDougall, Macdougall & Mactier, stated that “[Carney] has been a steady hand on the wheel in navigating the economy through the crisis.” While many Canadians share Nakamoto’s view, consensus is that the low-rate environment and the modest but sustainable economic growth Carney has left behind will keep Canada near the top of the G7 list for some time.