##lation could emerge. as a result, real interest rates would increase, fiscal consolidation would be more difficult, and growth would stall. a third risk is that exchange rates may adjust, but in a disorderly way. if increasing concerns about the u. s. current account triggered a portfolio shift away from the u. s. dollar, the resulting exchange rate adjustment could overshoot the level required to bring current accounts to sustainable levels. if that occurred, it would likely send shock waves throughout the global financial system, adversely affecting the world economy. such an adjustment did not happen during the recent financial crisis ; on the contrary, the retrenchment of risk - taking that occurred led to a shift into u. s. - dollar - denominated assets, resulting in an appreciation of that currency. but disorderly exchange rate adjustment remains one of the important risks associated with global imbalances. it is because of these risks that the g20 is placing so much emphasis on policies to achieve strong, sustainable, and balanced growth, in tandem with measures to build a more robust global financial system. the rotation of demand required to achieve such balanced global growth will require policy changes in both deficit and surplus countries. it will also involve adopting greater flexibility in exchange rates, which would facilitate adjustment to both current imbalances and future economic shocks. how can this adjustment come about? an important step is the g20 mutual assessment process, now under way, through which g20 members strive to ensure that the “ policies pursued by individual g20 countries are collectively consistent with more sustainable and balanced trajectories for the global economy. ” 2 each member country will submit its policies to the g20 for assessment by other members, with a view to promoting coherence among macroeconomic policies. details of this process are now being worked out, but the most important thing is that the required policy changes be implemented, and in a timely manner. failing that, we leave ourselves on the same unsustainable, and risky, path. allow me to conclude. conclusion the financial system makes a vital contribution to our welfare. a sound financial system, one that is stable, efficient, and resilient to shocks, is crucial to a well - functioning economy. while the world ’ s financial system is stronger than it was during the crisis, risks and vulnerabilities remain. the g20 agenda for financial and macroeconomic reform is sound and far - reaching. it provides a blueprint for building a

the depreciation of our currency is a natural part of the process. it does several things at once. first, it offsets a part of the drop in commodity prices, which are usually priced in u. s. dollars. in other words, canadian - dollar revenues for commodity exporters fall by less than u. s. dollar revenues. second, the depreciating dollar boosts canadian - dollar revenues for exporters of other goods, which are also often priced in u. s. dollars. this then allows those companies to compete more effectively for future export sales. those increased sales eventually mean more growth and rising investment in the non - resource sectors of the economy, and more employment. in other words, the exchange rate decline helps to facilitate a shift in the economy ’ s growth engine from the commodity sector to the non - commodity sectors. we have already seen stronger growth in exports of non - commodity goods such as machinery and equipment, furniture, pharmaceuticals, aerospace and electronics, to name a few. this is helping to offset the weakness in the resource sector tied to lower commodity prices, but this natural process will take time to translate into more investment spending and new job creation. third – and this will sound like a less desirable part of the process – a lower canadian dollar raises the price of imported goods for everyone. this spreads the impact of the loss of income across the entire economy, rather than leaving it just in the commodity - producing sector. bis central bankers ’ speeches even so, there are large regional and sectoral differences in canada ’ s economy – with the resource - producing regions taking a much harder hit. the exchange rate can ’ t absorb the shock in its entirety for any one sector or region, so those underlying adjustments will continue for some time. with this same story unfolding in other commodity - exporting countries, along with continued currency weakness in japan and europe, there has been a steady rise in the global value of the u. s. dollar. some observers have voiced concerns about the disruptive effects of excessive exchange rate variability and suggested that a stronger u. s. dollar could derail global growth. let me address both of those points in turn. first, it ’ s important to remember that variability in exchange rates and interest rates is natural ; financial markets generally react to movements in underlying economic fundamentals. so when you think about movements in financial markets and how they might affect an economy, it ’ s important not to lose sight of the underlying cause of