david dodge : fostering confidence speech by mr david dodge, governor of the bank of canada, to the vancouver board of trade, vancouver, british columbia, 10 september 2003. * * * good afternoon. it ’ s great to be back in vancouver and to renew acquaintances at the board of trade. i ’ m going to spend some time today discussing the bank of canada ’ s outlook for the canadian economy and inflation, and how we are responding. but in order to understand the current economic situation, we need to look at some of the extraordinary events of the past year or so and how those events have affected the economy. my last public speech here was almost exactly a year ago. you will recall that, at the time, markets were still in turmoil in the wake of enron, worldcom, and other corporate governance and accounting scandals of late 2001 and early 2002. in the united states and canada - as well as in many other countries - corporations, regulators, and governments were beginning to respond with measures aimed at restoring and maintaining investor confidence. then came 2003 - which could well be named “ the year of the shocks. ” there was the war in iraq, which is still being played out. the worldwide outbreak of severe acute respiratory syndrome ( sars ) was a blow to canada and to asia. the human toll of sars in toronto was accompanied by a severe drop in canada ’ s tourism and travel industry. we also had an isolated case of mad - cow disease that blocked our exports of beef and cattle. many of these export restrictions remain. and the forest fires in british columbia have caused extensive financial and emotional pain. meanwhile, the softwood lumber dispute with the united states has not been resolved. and recently, ontario suffered through north america ’ s biggest - ever power outage. however, the good news is that canadian consumers and businesses have been remarkably resilient through the past year or two in the face of all these shocks. but these kinds of shocks can have a significant impact on consumer and business confidence, especially when they happen in quick succession. today, i want to talk about the role that confidence plays in our economy and the measures that are being taken to strengthen it. trust and confidence are essential if markets are to operate efficiently, so that businesses can finance themselves in good times and bad. and canadians need to maintain confidence in the macroeconomic framework so that we can all reap the benefits of a smoothly functioning economy. the role of confidence in monetary policy at the

, and canada radically amended some of its laws. the banks reacted to the new competitive environment by innovating and improving their efficiency. canadian institutions became global leaders while foreign banks lagged, bound by more restrictive and less efficient regulatory regimes. for a full 30 years, canada maintained its lead on the world stage. recall that subsequent revisions to the law allowed greater competition between traditional pillars of finance, i. e., banking, insurance, brokerage, and trusts, thus driving down costs and increasing efficiency. over the course of the past decade, efforts have focused on improving prudential regulation, which seeks to stabilize institutions and the financial system as a whole. in 1987, the federal government created the office of the superintendent of financial institutions and the financial institutions supervisory committee. the purpose of the latter is to facilitate the exchange of information between various federal bodies involved with financial stability, including the bank of canada. at the bank, one of our less well - known mandates is to oversee payments infrastructures, especially the large value transfer system. the lvts is an electronic system launched in 1999 and operated by the canadian payments association. it meets or exceeds the highest international standards in matters of risk management, and does so at a fraction of the cost. experience has shown that a solid and comprehensive infrastructure contributes greatly to the robustness of a financial system. allow me to take advantage of this occasion to draw your attention to another less - recognized contribution of the bank : its financial system review. in it, the bank presents its current analysis of systemic risks, along with articles that tap into the wealth of research that we conduct into financial markets. in other matters, the restructuring of canadian stock exchanges at the end of the 1990s allowed specialization and solidified our market position. since that time, the montreal and toronto stock exchanges, and the tsx venture exchange have experienced remarkable expansion. it remains to be seen how the inchoate movement to consolidate markets elsewhere in the world will affect us here, and the new challenges it will pose to canadian stock exchanges. also, even though north american financial markets are more integrated than ever before, their regulation has not always kept pace, and non - tariff barriers, which one would have expected to disappear in an era of free trade, persist. in particular, i am thinking of the constraints imposed on small u. s. investors wishing to buy canadian stock. all in all, even though the canadian financial system has continued to develop since the porter report, it is clear