power, as large emerging markets have opened up to trade. but let ’ s remember that integrating new regions of the world into the international trade order is not a new phenomenon. since the early nineteenth century, various countries have emerged at different times as major forces on the international economic scene. after the second world war, the world trade order, which had broken down in the 1930s, had to be rebuilt. the war - torn countries of western europe were slowly reintegrated back into that order. through the 1950s and 1960s, japan re - emerged as a major economic power. then korea took off in the 1970s, followed by other so - called “ asian tigers ” during the 1980s and 1990s. now, it ’ s china ’ s turn. and india is not far behind. what makes the ascent of china and india different from that of other countries is their sheer size. together, these two countries represent close to 40 per cent of the world ’ s population. their combined economies, measured on the basis of purchasing - power parity ( which compares economies by equalizing the purchasing power of their currencies for a similar basket of goods and services ) add up to more than 85 per cent of the u. s. economy. in fact, by that measure, china ’ s economy is the second largest in the world, after that of the united states, and india ’ s is fourth, after japan ’ s. their influence is intensifying the competitive pressure facing producers in other countries, including canada. but it also means new, fast - growing sources of demand and new opportunities for us. let ’ s remember that some of the early emerging - market economies have become important markets for canadian goods and services. the integration of china and india into the world trade order is taking place as other emerging - market economies, such as mexico and brazil, continue to carve out their niches in world markets. now, i ’ d like to spend a few minutes discussing the adjustments that all open trading nations must make in this changing environment, and recall some of the lessons that past adjustments have taught us. benefits of international competition first, let me say a few more words about the competitive environment. not surprisingly, some perceive the growing competition from china and india as a threat. companies everywhere are under constant pressure to lower costs, and many of them are finding that china and india are attractive places to establish production facilities and service centres. the loss of certain jobs in the home countries of those companies

remains weak. so it is not really surprising that some are wondering if monetary policy has lost its power. low interest rates are actually doing a great deal to support the economy. to illustrate this point, if we were to raise interest rates to pre - crisis levels, say 3 to 4 per cent, there would be a significant contraction in the economy, and it is these contractionary forces that we are offsetting with low interest rates. but while monetary policy is still powerful, it is true that at the current setting, the impact of any interest rate reduction is less than it would be if rates were at historically normal levels. that is the case in a number of economies. in this environment, it is particularly important that all policies — monetary, fiscal and macroprudential — be working in a complementary way. this is why our agreement with the government is crucial. the government is making it clear that it also supports low, stable and predictable inflation, while leaving us the independence to pursue that goal as we see fit. it is a framework that has worked extraordinarily well for 25 years and, after looking at all the evidence, we could find no compelling reason to change it. with that, mr. chairman, carolyn and i would be happy to answer questions. 2 / 2 bis central bankers'speeches