mr thiessen reviews the challenges for canadian monetary policy in the year 2000 remarks by mr gordon thiessen, governor of the bank of canada, to the greater charlottetown area chamber of commerce, charlottetown, prince edward island, on 2 november 1999. * * * monetary policy actions take a relatively long time to affect the economy and inflation - anywhere between 12 to 24 months. because of this, central banks must always look ahead and must put in place today the monetary conditions that are needed to help keep the economy on a sustainable path down the road. by “ sustainable ” i mean a situation where economic growth and job creation are not at risk from rising inflation. it is in this forward - looking context that i would like to talk to you today about the challenges that may face canadian monetary policy in the year 2000. first, of course, is the turn of the century itself. so let me start by saying a few words about year 2000 readiness in the canadian financial sector. year 2000 preparations as i said in regina a little over a month ago, the canadian financial sector has done its year 2000 homework - and, i might add, done it very thoroughly. the bank of canada and providers of financial services are confident that canadians can expect “ business as usual ” in the financial sector as we head into the year 2000 and beyond. the critical systems of financial institutions, including those systems that support automated banking machines, credit and debit cards, and telephone banking, have been modified where necessary and tested. providers of infrastructure services to the financial sector ( for example, electricity and telecommunications ) have also reported that they are year 2000 ready. and major canadian deposit - taking institutions have guaranteed the safety of their clients ’ accounts and records from any year 2000 computer - related disruptions. the bank of canada has given the same guarantee to holders of canada savings bonds. even so, retesting of systems and contingency planning will continue right up to, and including, the new year ’ s weekend. right now, the canadian financial sector is so well prepared that the major issue is no longer one of potential technical problems. rather, it is a matter of dealing with a possible overreaction to year 2000 fears that could be more disruptive than the year 2000 problem itself. with this in mind, the bank of canada has built up a large inventory of banknotes. this is not because we think that canadians will actually experience widespread problems using means of payment other than cash, such as credit and

the conventional estimates of potential output, monetary policymakers must be on guard. in other words, we are at the point in the economic cycle where the bank of canada will have to be very alert to early warning signs of accumulating price and cost pressures. and we will have to respond promptly and firmly if any such signs emerge. the bank will deal with this risk by closely monitoring a wide range of indicators that can help it to assess the extent of present and future pressures on capacity and on inflation. these indicators include unanticipated movements in current inflation, changes in expectations of future inflation, the growth of money and credit, and information gathered from the bank ’ s regular contacts with businesses across canada. in conclusion, let me say that you can be assured that the bank is very sensitive to the increased risks of inflation that are coming from continued buoyant growth in the united states, improved economic prospects in europe and japan, and the increased momentum of domestic spending here in canada. in facing the various challenges that may arise over the next year, it will be crucial to ensure that the bank continues to deliver a trend of inflation that is inside our target range of 1 % to 3 %. it is only when canadians can count on inflation staying low and stable that our economy performs best.