stephen s poloz : the legacy of the financial crisis – what we know, and what we don ’ t remarks by mr stephen s poloz, governor of the bank of canada, to the canadian council for public - private partnerships ( ccppp ), toronto, ontario, 3 november 2014. * * * introduction i am delighted to be here with you today, thank you. i applaud the council ’ s efforts to foster stronger partnerships between the public and private sectors in the development of infrastructure, which is absolutely critical to our economic future. i ’ ll speak today from the perspective of a monetary policy - maker, whose mandate also is to contribute to the economic and financial well - being of canadians. i ’ d like to talk about two subjects today : what we know, and what we don ’ t know. i ’ m sure it won ’ t be a surprise that the first part will be shorter than the second part. my goal is to help you understand better the risks that we face. if i do my job well, i ’ ll leave you with a sense of how the bank weighs the known and the unknown when setting monetary policy. what we do know let ’ s start with what we do know about our current situation. most of us acknowledge that it all began with a period of exceptionally strong global economic growth in the mid - 2000s, some creative financial engineering, an explosion of leverage and a speculative bubble that touched a lot of markets. the bubble burst when the u. s. housing market rolled over and some significant financial vulnerabilities were laid bare. the ensuing global financial crisis in the fall of 2008 was truly dire. monetary policy and fiscal policy were quick to respond around the world, with collective g - 7 and g - 20 announcements on thanksgiving weekend that year. since then, we ’ ve seen policy rates near zero in several countries and an unprecedented use of unconventional monetary policy, including quantitative easing. we will never know how bad things would have been without that aggressive, coordinated policy response. but as a student of economic history, i can say that all the ingredients of a second great depression were present. we ’ ve managed to avoid that extreme scenario, but the damage wrought by the great recession has been brutal nonetheless. by the end of last year, the loss to global output from the crisis was roughly us $ 10 trillion, which is close to 15 per cent of global gdp. today, there are over 60 million fewer jobs around the world than had

before taking a decision on issuing it. by way of example, i would highlight the need to minimise the adverse impact that potential banking disintermediation would have on financial stability, or the possible effects of the digital euro on situations of financial instability. these aspects probably require an additional analytical push to ensure that these unwanted secondary effects can be avoided. in any event, i believe the eurosystem ’ s current position does not differ substantially from that of those central banks that are immersed in a similar line of thought. where we may diverge somewhat more is the pace at which we are moving, largely as a result of the different state we are in relative to the scenarios indicated. for instance, in the nordic countries the diminished use of cash is already a fact. likewise, means of payment in china https : / / www. bde. es / f / webbde / spa / sispago / ficheros / es / estadisticas. pdf. appear to be tending towards concentration in ecosystems managed by a small group of local technological giants outside the traditional banking system. what this discussion shows is the need we central banks have to understand the changes the economy is facing as a result of the digital transformation and, most particularly, to appreciate the scale of their impact on the financial sector. the importance of the functions assigned to us both in monetary policy and in payment systems means our action must always have the broadest consensus and be preceded by rigorous and in - depth analysis. squaring the rigour of our decisions in areas of undeniable importance for society at large with the flexibility and swiftness of response that a rapidly transforming economy demands poses a challenge. to resolve this challenge we must call on our capacity to anticipate these situations so as to be able to analyse them in good time and in all their depth. i consider that both the ongoing review of monetary policy strategy and the strategy to address the challenges arising from the growing digitalisation of the financial system are two sound exponents of this way of working. they will allow us to continue adding the maximum value to the european economy and, by extension, to spanish society. thank you. references aguilar, p., o. arce, s. hurtado, j. martinez - martin, g. nuno, and c. thomas ( 2020 ). “ the ecb monetary policy response to the covid - 19 crisis ”, occasional papers, no 2026, banco de