stephen s poloz : speculating on the future of finance remarks by mr stephen s poloz, governor of the bank of canada, to the economic club of new york, new york city, 11 december 2014. * * * introduction thank you for the invitation to speak here today. it is always a pleasure to be in new york, and it is a special treat for me to address this distinguished audience. i ’ d like to talk with you about the future of finance. now, i know i don ’ t have to convince anyone in this room of the importance of financial intermediation. just as you can ’ t have lights without power lines, you can ’ t have economic growth without financial intermediation. but as you also know well, our financial regulators have spent the last five years putting financial reforms in place in the wake of the 2008 financial crisis. there is absolutely no doubt that these reforms will affect the future of finance, but none of us really knows how. financial intermediation is already evolving in response to the reforms, and i think it is worth speculating on how these trends might develop in the future. the only assumption i make is this one : no amount of regulation can snuff out the forces of competition – competition is a force of nature, and it is going to manifest itself in some way, for there is a lot of money at stake. regulatory response to the crisis : too much or too little? at the g - 20 summit in brisbane, leaders acknowledged that we have delivered on the core commitments made in response to the financial crisis. yes, there are still some important issues to address, particularly with respect to consistent implementation of these reforms. but for the most part the core of the world ’ s financial system is far safer today. depending on your perspective, these reforms are either overly harsh, or too lax. a systemically important bank sees the steep cost of reform, while the unemployed worker still feels the steep cost of the crisis. my perspective as a central banker is a macro one, and i can tell you that by the end of last year, the cumulative loss to global output owing to the crisis was roughly us $ 10 trillion, which is close to 15 per cent of global gdp. over 60 million jobs were destroyed. we have rightly made a strong commitment to address the most serious fault lines exposed by the crisis, to reduce significantly the probability and severity of future ones. in short, we would like to ensure that this

its potential. iv. the rise of asia : regional developments there are already important and rapidly developing economic linkages among parts of asia, particularly in east asia, where a grouping of asean plus japan, china and korea seems to be emerging. the politics of such a grouping are not simple, for the japan - china relationship is evolving as the chinese economy grows, and as it becomes clearer that china will overtake japan at some point in the not too distant future. the implications of this change can be summarized by noting that japan is the largest shareholder in the asian development bank, and by tradition appoints its head ; that the formation of an asian monetary fund during the asian crisis in 1998 was not strongly supported by china ; and that china will no doubt want to play a greater role in any future regional institutions than it does in the adb. some in east asia talk of following the example of europe by improving trade and financial links, and later moving to a common market and unified financial system. it is recognized that this will take a long time, but those involved note correctly that it took the european union a long time to evolve to its current condition. the european equilibrium is simplified by the fact that no single country dominates the union, whereas china would likely be the dominant power in an east asian union. for many years europe was driven by the franco - german determination to build a structure that would prevent any future wars ; possibly east asia could eventually be driven by a similar process of chinese - japanese reconciliation, though recent trends have not been in that direction. one could imagine japan eventually playing a role similar to that of the united kingdom in europe, that is, as a leading member, but one whose views on the nature of the organization may often differ from those of other leading members. at present, there is much talk of an east asian common currency. whether there would be a basis for such a currency depends on how china ’ s financial and currency management systems evolve. since china would eventually be dominant in an east asian economic bloc, its preferred currency arrangements will determine the eventual outcome. very likely, the non - chinese members would like to have a common currency so as to have some impact on region - wide monetary policy, but whether china would grant that role would be up to china. here again one could see japan playing an independent role by retaining its currency, rather like the united kingdom currently does in europe. further to the west, a large economic bloc could eventually develop around india, but that