, and investment decisions with greater certainty, knowing that their central bank will hold the line on future inflation and that the economy will be more stable.... restoring fiscal health but low inflation, although essential to good economic performance, is not sufficient by itself. it has to go hand in hand with prudent fiscal management. since the early 1990s, canada has also taken action to put its fiscal house in order. and this is paying dividends. wiping out deficits at all levels of government has helped to bring about low interest rates and relatively more stable financial markets.... undertaking business restructuring and embracing open markets low interest rates and greater confidence about the future have, in turn, encouraged canadian firms to undertake important restructuring initiatives to meet the challenges of sweeping worldwide technological change and intensely competitive global markets. over the past decade, these restructuring efforts have taken place against a backdrop of sustained efforts to open up our economy even further. indeed, building on the trade agreements that we forged in the late 1980s and early 1990s, such as the north american free trade agreement ( nafta ), we have significantly increased our involvement with the world economy. altogether, it is clear that, over the past decade, we in canada have done a lot to strengthen our economic foundations. because of this, we are now better positioned than we have been in a long time to weather economic turbulence and to take on new challenges. but, in a rapidly changing, increasingly competitive world, " they who stand still, fall behind. " if we are to seize the opportunities out there in the global economy, we have to continue to move forward and make further progress. longer - term challenges to good economic performance — the way ahead before i focus on the new things we need to do to facilitate progress in the future, let me stress how important it is that we maintain the strong base on which everything else rests — sound macroeconomic policies.... sound macroeconomic policies fostering a climate of low, stable, and predictable inflation is the best contribution monetary policy can make to good economic performance over the medium term. the bank of canada is carrying forward its commitment to preserve confidence in the future value of money — that you can bank on! on the fiscal side, it is critical that our public finances remain healthy and that all levels of government continue to reduce their net indebtedness over time. a declining public debt relative to the size of our economy will make us less vulnerable to external shocks. but i haste

in a new form outside the current regulatory perimeter. once again, payments are a great example. i worry that players not covered currently by regulation could become important to the system even if they never take on bank - like risks, such as maturity transformation or leverage, or become big enough to be considered systemically important. the move to increased direct access means that even smaller players could very well create critical dependencies within the financial system, particularly if they connect directly to core payments infrastructure. this could give rise to moral hazard. at a minimum, authorities need to put a large enough weight on operational dependencies when looking at systemic importance, particularly in light of cyber risk. when a payment system grows to be prominent or systemically important, the bank of canada ’ s job is to oversee it. even before we reach that point, regulatory measures should be considered to address specific issues, such as operational resilience and consumer protection. 15 i also wonder how dlt - based infrastructures could affect the financial ecosystem. everincreasing automation through, say, smart contracts, could increase efficiency and certainty but could also increase financial volatility. would that volatility be short - term, such as flash crashes? or would it entail procyclical dynamics or new channels of contagion? there are also questions about whether the regulatory perimeter is adequate, given new entrants and risks of regulatory arbitrage. in my view, the field of inquiry should include the inherent risk and systemic importance of an activity, regardless of what entity is performing it. even as we strive to implement a regulatory response that is proportionate to the risk, we need to keep in mind that maintaining a level playing field is important. some of these issues are not too different from those that authorities face in their work on shadow banking, another area where new entrants are challenging traditional players. 16 and, big or small, operational risk deserves much greater attention. the second way to address innovation in financial services is active engagement between authorities and the private sector. some countries, such as the united kingdom, australia and singapore, have created official regulatory “ sandboxes. ” 17 these sandboxes allow startups to experiment with services without jumping through all the usual regulatory hoops. the federal government conducted a consultation on these issues in 2015. see “ balancing oversight and innovation in the ways we pay : a consultation paper, ” department of finance canada, 13 april 2015. for a discussion of the