remarks by lawrence schembri deputy governor of the bank of canada atlantic institute for market studies halifax, nova scotia 8 november 2016 wood, wheat, wheels and the web : historical pivots and future prospects for canadian exports introduction thank you for that kind introduction. it ’ s always a pleasure to visit halifax. and thank you to the atlantic institute for market studies for the opportunity to speak here today. the research papers you publish on economic and social issues are thoughtful contributions to the public discourse. since its founding in 1749, halifax has served as a critical point of transit for canadian trade. with its extensive port facilities, this city has supported the growth and evolution of canadian exports from the early trading of fish and fur in sailing vessels to modern consumer and industrial goods in huge container ships. inspired by the historic and ongoing contribution halifax has made to canada ’ s international trade, my speech today is about the evolution of and prospects for our exports. the question i will try to answer is : what insights can we draw from the history of canadian exports that will help us better understand our recent export performance and prospects for the future? this is a particularly important question today, given the slower - than - expected recoveries in global demand and canadian exports since the great recession of 2008 – 09. while canadian exports have grown over this period by approximately 4 per cent per year, their growth to date remains below the experience of past recoveries. for example, exports grew nearly 8 per cent per year over a similar length of time during the recoveries from the recessions of 1981 – 82 and 1990 – 91. this difference is important because stronger export growth is critical to achieving a more sustainable growth path for the canadian economy. throughout our history, we have successfully relied on trade, both exports and imports, to support our rising standard of living. exports have always been an important source of economic growth for canada ( chart 1 ). today, exports and i would like to thank daniel de munnik, karyne charbonneau and laura murphy for their help in preparing this speech. not for publication before 8 november 2016 11 : 05 eastern time - 2imports represent about 65 per cent of our output, which is one of the highest ratios among the g7 countries ( chart 2 ). exports are not a goal in and of themselves, however, but a means to acquire imports for consumption and investment. furthermore, trade generates global benefits because it encourages countries to specialize in the production of those goods and services

ties to other, much larger, economies. globalization and the emergence of new economic powers in asia and latin america have expanded the number of connections but not the fundamental facts of canada ’ s economic situation or the policy environment within which we operate. canada abandoned all of its currency controls and virtually all of its capital controls shortly after the second world war, and moved to a floating exchange rate in 1950, well before the collapse of the bretton woods system. 12 despite the monetary independence that a floating exchange rate gave us, our long - term interest rates have always moved closely with those of the united states ( charts 7 and 8 ). this should not come as a surprise, given the close real economic ties between our economies and the highly integrated nature of our capital markets. the same is true of other countries now that they have shifted to open regimes similar to our own ( charts 9 and 10 ). nevertheless, canada has been able to control inflation and has been a successful inflation targeter since 1991, influencing economic activity and aggregate prices through adjustments in interest rates at the short end of the yield curve. these changes are in turn reflected, albeit with declining influence, out the yield curve to longer - dated instruments and, importantly, in the exchange rate. in this regard, the exchange rate serves as both an automatic buffer for internal and external shocks and as an integral part of the monetary policy transmission mechanism. indeed, in a classic paper written in the early 1960s, mundell ( mundell, 1963 ) showed how, in a world of complete asset substitutability and perfect capital mobility, real interest rates would be largely determined by international market forces with the exchange rate moving in response to changes in domestic monetary policy to provide most of the desired accommodation or tightening. mundell ’ s model was extremely simple and included a number of heroic assumptions, but it accurately reflected important elements of the world in which open economies operate. r. a. mundell, “ capital mobility and stabilization policy under fixed and flexible exchange rates, ” the canadian journal of economics and political science 29, no. 4 ( 1963 ) : 475 – 485. canada has had more experience with a floating exchange rate than any other major country. while canada reverted to a fixed exchange rate in 1962, this proved to be temporary, and the dollar was allowed to float again in 1970. overall, the canadian dollar has floated for 55 of the past 63 years. bis central bankers ’ speeches although authorities are able to exercise