Breakingviews - Carney’s BoE legacy is bigger than monetary policy

Governor of the Bank of England Mark Carney attends a session at the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 21, 2020.

LONDON (Reuters Breakingviews) - Mark Carney was hailed as a rock star central banker when he became the Bank of England’s boss in 2013. He will leave in March with more hits than flops under his belt.

That’s impressive given the tricky economic and political waters Carney has had to navigate. While his last monetary policy meeting was a sedate affair, with the bank announcing on Thursday that it left rates unchanged, Carney has had to cope with a referendum on Scottish independence in 2014, and Britain’s decision to leave the European Union in 2016. The economic risks he pointed out in the run-up to the latter turned him into a hate figure for Brexit-supporting politicians.

Yet the central bank was the only institution that could act quickly after the results of the referendum battered confidence. The BoE resumed bond purchases and cut rates to calm markets and support growth. It has also worked closely with European regulators to manage the potential risks of an abrupt exit. Many difficult decisions on EU-UK trading relationships still lie ahead even though Britain leaves the EU on Friday. Carney’s successor, Andrew Bailey, has largely kept his counsel on Brexit, but won’t have that luxury for long.

Carney’s copybook is not completely clean. Notably, his early attempts to use words to steer the expectations of financial markets, households and businesses went awry. Investors interpreted so-called forward guidance about when the central bank might begin to consider rate rises as a firm guarantee and were brutal in their judgment when it disappointed. The moniker of “unreliable boyfriend” has dogged Carney ever since.

Yet Carney’s BoE legacy extends well beyond monetary policy. He will probably be remembered most for shining an early light on the risks that climate change poses to the financial sector. His 2015 speech on the topic was criticised for addressing a subject viewed at the time as being beyond the purview of central bankers. Yet others have come around to his thinking. Today, the Network for Greening the Financial System, a group of central banks and supervisors, counts more than 50 members.

Carney’s work in this field is just beginning. The Canadian will this year become the climate finance envoy for the United Nations. Brexit and monetary policy may pale into insignificance next to his new challenges.


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