good morning. i am the director of the center on the monetary policy of the brookings institution and i'm very pleased to welcome our work to the virtual stage today. extraordinary is an overused word but the career qualifies for sure that if you look at the resume you might think 96. he was born in canada which i know because a google search turned out the motto is perseverance. with a phd from oxford and 13 years goldman sachs, in the canadian government including five years in the central bank of canada during the global financial crisis and then because that wasn't challenging enough he became governor of the bank of england for 2013 to

2020. he is now an advisor to the british prime minister, climate action and finance, vice chair of the asset management and as a future potential candidate for the prime minister ship of canada and he's only 56 and i'm not going to deal with [inaudible] mark must have decided he would write only one book in his life so values building a better world for all his several books in one. it's a history of money, discussion of what markets can and can't do well and what to do about it and lessons on leadership. i'm probably one of the few that read all 20 paragraphs of the finance ministers communiqué that came out over the weekend i

thought we would start with the very provocative and interesting title of your book which is the preface around the s and you talked about the tension between value, which is a market determined to something or another and values, which has to do with our moral being and i wonder if you can talk about what we were trying to do by putting those together and what does it tell us about how we should run a society that is market driven but not market controlled. >> thank you for having me and thank you to brookings for putting on this event and for all the great work you do. i've been a huge consumer over the years and over the coming

decades may be you and i that led the communiqué i'm not sure anyone else did but many people would be affected by what's in that communiqué and underlining decisions so we will get to that. thank you for going straight to the title. what i am trying to get across in the book is the causality between the values in both directions, so on the one hand you have the circumstances that are exemplified but in the run-up to the financial crisis, some of the underlining values that support good market functioning, and this is the point that goes back to adam smith and most of the political philosophers and in the end most market participants would recognize that there's a role for regulation but also other institutions that are customs

and rules but we lost some of that and the balance went out and it's one of those factors to the financial crisis. the next relationship between the value and values is i will simplify the market aspect of society, so there are the efforts to bring in certain elements of activities whether it's a charitable activity volunteering, i can go on. but in effect, bringing them into the system and in that process depending on the activity in the process there can be a corrosion and it ends up being counterproductive. that's not the core element, it's an observation i needed for completeness. the third aspect is when value can deliver societal values in

other words really what i'm getting at here is the examples we will have the chance to talk about with climate change so the trade-off mentality as a policy maker and economist but to certain objectives, societal objectives that become a focal point and i would argue that we are moving to that position now with sustainability. then the market properly formed with the right tools would be the driver of delivering the societal values so yes the book, there's a lot in the book but it's trying to capture those elements and use the experience of the crisis that i lived through and others of course on this webinar with active participants over the last ten to 15 years.

>> are we too far towards the market or towards the moreland narratives at the moment or is that not something so simple? >> i lived through this as a policymaker. we were too far in the markup to the crisis. it was an era i don't think it's an overstatement with the carbon capture the answer to the market failure was generally to create new markets and again since this is brookings, the shorthand is to say it and incomplete markets, so the answer is of course the students know there's a lot of fundamental assumptions and that commodity and circumstance.

this is a real balance that there was nothing to tell only the lessons of the market and so there was the clean not lean approach in central banking and other regulation aspects that were there and very little reassurance the market must have it right for something like if it wasn't going to happen as opposed to much less of what happens if it does happen what should we have done in that event so in that case we definitely had the pendulum wrong. in the case of something like sustainability, i'm sure the issues with climate change are the product the market failure

can be fixed through the externality of the factors, so if something were more comfortable with. i tried to argue over the years that there is also a tragedy on the horizon that we are discounting the future quite heavily and by the time it is a danger in terms of the physical impact of climate risk it is too late to take into account so the question is how do we change that, but in the end that is a question of the political question which is does the society values sustainability, and until we get to that moment, the market isn't fully going to be in service, nor are the regulators and for those who take the opportunity to say what we very clearly did six years ago in the setting up with mike bloomberg as a part of the g20 process but a private sector

process. >> on the climate disclosure. >> the task force disclosure which was a standard for the companies, a recommendation for companies to disclose not just the carbon footprint but the risk going forward and what might they do about it. when it came into being it was suggested to provide information to the market to make a transition because some people thought it was an issue and some people didn't think it was an issue. some thought the governments would ultimately act and some thought the governments wouldn't act in the end and therefore it would ultimately end up in a reasonable horizon. now that shift, as you look forward to today in many countries they say we are going

to move to a legislative objective. sitting here in canada legislating going $170 by 2030 even though it's canadian dollars is a lot of money so that is focusing and brings forward the future so we see that shift. it's a long way of answering the question in terms of the values, but those values in the end are determined by society. but if you do, and i will finish here, david, i spend a lot of time with people who are very focused on the environment and they intend to discount the market and underestimate the power of the market and finding solutions to an issue. >> let me get back to climate change but i want to talk about the nature of money first and

your thoughts on the fixation a lot of people have with crypto currencies and what the potentials and risks are. i know that the g7 says it will be warming up to the idea of the central bank's currency and they seem to be really down on any like those formerly known so in this moment of crypto currency what do you think is going on with more positive and negative aspects? >> i thought it was particularly eye-catching as well with all aspects of that and we are in this time of competing

currencies with facebook's effort as most people know it is a crypto instrument that is backed 121 by the underlining assets of the u.s. dollar. by the way this is a key point not just in treasury but the liability in u.s. dollars that matches the maturity of money. i can think of one place that provides that called the federal reserve but i can't think of any anywhere else and do so by definition while i'm on that topic, history shows the temptation to run overtime for a private sector is basically what the bank of amsterdam was and ultimately how credible is that

commitment. in the 1600s ultimately they end up not just writing a mismatch but people realize the bank of amsterdam bills have risk associated with and they previously had the goal that had been deposited there so that is a real concern. in the end ultimately it will stretch the money for nothing type of approach and in the end why wouldn't you just have at the central bank if you will have a stable point why wouldn't you have your own digital currency and now there's other forms that i suspect is where this will go.

the context of what's happening there is a series of crypto assets of varying degrees and purposes. some of the most interesting ones are those that are specific gaps in the system they are doing it in a way that serves a role so it is legitimate that two can play a role. some tried to play on the cross-border payments and i think in the end of the scheduled position where they saw that issue but we will see. it has to be said and we've seen

in the recent examples there are gaps in the payment system called ran somewhere. that's not a gap that we want to close, so you get the point. this is -- these are questions of the underlining money. we need something resilient and transparent, and it also needs key points and adjustment mechanisms that fairly shares burdens, so the gold standard. it was ultimately felt by too much of the labor. that's always been one of the risks.

they will likely be some inefficiencies with the linkages that will come down. most won't see the wallet for the bank we will still have a lot of insight behind those institutions that will be indistinguishable but there will probably be in parallel some private monies for specific applications that are legitimate gaps in the system used by a subset of users and the interoperability will have to be established. a. >> of the account based currency

will have a digital account -- it won't just be the banks that have those accounts. it could be a think tank company wallet and they need to have that as well because the settlement is across the account in this case the bank of england. >> its efficiency and constitution and i understand i'm not the one doing the programming but it is

programmable for smart contracts and other applications that are potentially contingent. >> think of the people you know and i said when i was governor in the uk we have a few decades. >> if we are serious about

resisting climate change and you think we are increasingly serious about it doing as little as we have done so far would be a huge mistake and a disservice to our children and grandchildren and your basic argument if i get it right is you want to bring climate risks and resilience into the heart of financial decision-making and so tell me how that happens. how you get to companies and banks and insurance companies and consumers to fully internalize the cost of the behavior that is contributing. >> one of the principles is net zero so what happened with climate change, this has always been understood and for the

longest time you can't stabilize the temperature we can't stabilize it until we get to the greenhouse gas emissions and i will streamlined that. >> it means that emissions agriculture and other activity are removed from the atmosphere. so the new force while they are growing those are the two most obvious ways.

it's a net to zero cost to try to continue to increase that so then that boils down to the question can you operate in these jurisdictions. i don't have a plan because i

don't think the government's policy is credible or that this will actually happen i'm going to run off my business. most people don't choose that option. certain activities over 15 or 20 years and the third option that most companies need to be thinking is i am committing and putting in place a plan and will be at this point so now we are moving into a financial system which is getting that information. you are judging company is in

terms of do they have a plan or are they likely to succeed with their plan and are they going to be competitive in a world moving to net zero if not a rising price on carbon regulation and more competition from the low carbon technologies and that is a decision point on the company values and not just on the extremes. from the summit there is an announcement of a new alliance which is the core of the financial system.

committing to have these plans for their own balance sheets and the last point there are ways to build this out the incentives are there for the transition so other words incentives are there so i lend to or invest in a company who might have high emissions today and might even go up for the next few years but by giving them capital for a period that those emissions will come down over time and avoid what we want to avoid is a very on the surface satisfying sort of binary approach there is

green and brown assets and get rid of it and just go to green. that's not the transition. we need them to make big investments. when i noted on twitter i've got some people you've heard from yourself that suggest a company like brookfield where you're involved in doing a lot of investing so what is the role of the big institutional investor you're suggesting not investing in fossil is a mistake because it doesn't give them the resources to make the

transition. >> it's entirely situation specific. as a part of the 70 trolling and we bring 600 billion to the 70 trillion because we are members of the alliance, the large alternative asset manager. so, what we are doing is we have mapped our carbon footprint and we are developing and have the strategies which i'm very much participating in which is to help accelerate for companies of specific fund strategies but we are also addressing the overall 600 billion of assets but to be clear about brookfield it's one of the biggest renewable power generators in the world that's over 20 gigawatts of power and another 23 gigawatts in

production. that's in london and paris and chicago and new york in the scale of the generation it is a huge amount and then here is the key thing when we own the pipeline infrastructure for example what is the terminal value of the pipeline, so how long is it likely to be natural gas going through the pipelines is there an option value for that to be converted to hydrogen or some kind of opportunity and that is a fundamental part of the judgment. i would say last thing, that sort of thinking hasn't been mainstream in the capital market but it is moving quite quickly which is going to enhance the value infrastructure assets because they have option values or because they are going to be

longer because it's in jurisdictions where either it's the lowest solution for a period of time or one of the lowest solutions for a period or can be extended for other reasons. but that's part of thinking about the transition. so, just to finish the sort of simplistic thing which is what we are trying to avoid for the system as a whole that is hypocritical. no, it's not. it's an energy transition. we have to make a judgment. others will make different judgments about what works where. we could be wrong about some of them. the transition could have been sooner, but we are grown up and we get more right than wrong and we will deal with it accordingly. >> you are speaking to us we mentioned canada has moved it's

going to be difficult for canadians that feel like this is great we are doing our part and the u.s. is getting a free ride. >> the issue of carbon linkage is a growing one in trade policy, and as the question suggests in this judgment it is often expressed it can be canada and the u.s. or canada, the u.s. and china in terms of emissions. i think that -- maybe i will answer it in terms of how we think that the trade policy might go around this issue. first, it is a relatively smaller group of tradable

products for which this is a big issue and a component but there's some pretty political motivated ones. steele would be a classic example. the second thing is that what is the openly talked about carbon border adjusted mechanisms, the president mentioned it the initiative, the canadians talk about it. one of the challenges to be wto compliant the easiest way to do it is based on a carbon price and because i have this price and you have one that is half mine, but when the u.s. doesn't have a carbon price then you move into a world of shadow carbon pricing which is harder to map but is the equivalent of my emission standard on the

price of carbon, you get the point. so, there's that. the other is around product standards. so having the carbon components, steel has to be a certain quality. and the personal view cutting it short is that i think kind of over the next several years it is more likely to land on the product standard side and not exclusively because of this and not least because they don't have a carbon price it doesn't seem likely to have one in the foreseeable future despite the economic benefits going down that route. >> this was made in a way that limited the carbon emissions. >> that would be the ability to measure again and part of the disclosure standards is the ability to map that not just in

the steel making the process but from the power that is provided, and the carbon delivered to the ports. >> what about china and india they say you used up all of this industrialized and now you want to restrain our growth and the chinese talk a good game but they are still building plans and india has all sorts of issues. how do you read them? are they serious about it and how do they play in this? >> they are all equal but some

more than others and obviously china and canada. i would say the chinese have pretty explicitly taken to view being low carbon and having low carbon industries that enable low carbon as a fundamental driver of competitiveness so there's a big economic motivation and the push towards net zero. so that's first. the point that hasn't been lost on other major economic powers, so this is reinforcing the market in some respects with competitiveness around the industries of the future. the second thing is the chinese

just started to shift their stance. so they said the biden summit that they would peak in 2025 and begin to manage. it's all very fuzzy to be clear, but it's that impression on coal in the latter half of the decade which is the key. the objective is advanced economies by 2030 and 2040. the extent to which it can work has an element of growth and then tailoring off of that. they are big in solar and electric vehicles and other things. we collectively have a strategic

issue central for a number of these climate applications and the development of alternatives is critical including in canada that is part of the solution for that but inexpensive part of the solution so we need to collect and think that through. but i think china is a force of this and the largest emitter but also one that will increasingly be central to the solutions. i think india is more straightforward and it's a complicated place to govern in a federal structure but the commitment at the top is quite clear whether it is formalized into a commitment remains to be seen. but the scale of ambition is enormous and one of the most attractive growth opportunities. and i think that i'm pretty upbeat on india in terms of what

actually will happen on the ground not least in the economics of a number of the solutions have shifted. but again, we've left this issue and so the scale of what needs to be done is enormous. you could pick canada. maybe we have huge changes that have to happen here and that is true for virtually every country. >> there's a question sometimes about the role of central banks in this issue. you pointed out that in the uk, the bank of england has pretty broad supervisory responsibilities including for insurance companies which the federal reserve doesn't have. the european central bank suggested that maybe they should be bringing their portfolio when

they do things like quantitative easing and give people at the federal reserve the shivers, so how would you describe i think the role of the central bank as a financial supervisor in this area is pretty straightforward if the institutions are taking risk that they do not fully understand it's the role of the supervisors to point that out but when you get to things like creating bond portfolios do you think that it's a step too far or we have to use every tool we have? >> for those who don't follow it on a daily basis, i understand how you might not, but the bank of england received three letters that said monetary policy committee which is the macro financial committee, and

the prudential supervisory committee take climate change into account consistent with the framework so as a secondary or supplementary objective and what the bank of england is doing is now last week and i would recommend they have come up with a discussion on how they may tilt the program to take climate change into account and have about 6% of the uk corporate bond market but it's a central bank and it could set a standard and a de facto standard depending on how they do things.

now over to the u.s. where it's the current government's policy, it isn't a mechanic of regular letters from the treasury secretary to the fed chair, and the principal in general is one of market neutrality. sometimes you still have price discovery but you get back on the monetary it qualitative easing but you have a credit standard and once you meet that standard you more or less having an overlay on top of it which my personal view is you need that grounding that the bank of

england has the requirement for them to take into account but it's pretty well grounded legally and i can assure you if they get it wrong they would be looking at it. my read is that that doesn't exist for the fed so we end up with doing different things and they are all right and correct in what they are doing. it's a nature of the institution. i think by the way some of the common trivia is informed like

the banks had these new responsibilities and it couldn't be more clear. >> somebody wrote the question asking how do we operationalize the recommendations for deeper values in the economic decision-making and you made the plant when the society decides to do something then the market is a good way to make it happen but the predicate is that the society has to decide that the values are important enough and i think the question is how do we make sure policymakers in the society do that? >> that's part of the reason the book is so long. if you go to chapter 16 and the

leadership chapter these are examples of how you do it. one of the values that's important for the market functioning you have the alignment of compensation.

in terms of sustainability and part of the way we do it apart from countries setting up objectives that gets you thinking as a senior manager and the board member. what does my portfolio look like if the country does what it says it wants to do getting into the habit of planning for failure.

for the period of time of the successful cyber attack how you keep the system functioning. the book is anything but that and just to be clear in the end these are values about longer-term economic prosperity.

we have a response to the pandemic which worked out extraordinarily well. we are pushing the insulation out beyond our objectives and i sort of wonder how you look at the world of inflation particularly given what we see. >> look, i think the prospect of the last couple where it's been

well telegraphed it would be the target over the horizon. there were signs of in the labor market signs in terms of supply shortages and it's a little more than a short-term.

the inflation longer than the makeup. it's very comforting and you describe some ways you did earlier in the conversation we could embed those values in our economic decision-making in ways that don't require us all to give up electricity or stock.

we described how we could get from here to there. when we look at the political system in the united states, when you look at the polarization here and the rise of a populace in france and germany, when you look at the israeli democracy i just wonder how you reconcile your upbeat view that sound well-meaning thoughtful policymakers can get us to a better place with a system that seems determined to prevent that from happening. a. >> a couple of suggestions on the issue first, it does put a premium on measures that have

immediate payback in jobs and growth so high multipliers. it's an obvious point but it does bear repeating. one of the simplest things to do certainly in the uk you go to the houses with all due respect in the room that you are in its keeping the cold in and there is the desire for all that and the need for them in the material and of course you employ a massive amount of people to cover the whole country on the renewable side the wind industry that has high multipliers particularly in some of the less

advantaged so you do those things early with tangible benefits that affect a lot of people and create jobs and that's what this is about and as you say and in parallel this is the hard bit. i agree it is hard because of the political dynamics you need enough consensus for this to be credible which is you want to lay out the tough regulation down the road so the advantage that you gave saying there is no combustion engine after 2030 is credible. now one of the big decisions for the biden administration is what is the equivalent of that or is

it not that explicit that de facto means it seems like gm and now ford already got the message anyway that is for the investment today if it is credible and predictable. again i sound like a central banker but it's something that i've worked on with janet yellen before she found something better to do than that. ..

>> upheld that part of our again. so i'm just wondering do you have no doubts about the zoning of our democracy to do this? >> i definitely do. i was trying to give you a path that so that is a pretty

big can afford to be legislative with policy. so even more so to give people what they really want which is jobs and progress that your job australia has been in that position on climate. so it doesn't matter. i guess the way i would put it to bring it back in the book

is that there is a value of dynamism which is market returns and growth and then to deliver alongside sustainability. and then bring it back to central banking one thing we always caution with the bank of england is in our financial stability will is the stability of the graveyard. don't pile capital so high in the banks so that the liquidity is so high there is no lending. and then we take that seriously so the is to have the sustainability that is sustainable in all sense it is flatlining growth. >> can you and don some

conclusions from your chapter in leadership what are the most important lesson is that you have learned in your time? >> i mentioned it earlier meant to be a central banker look at the glass half empty and with brexit my job was to think about what could go wrong care for it so that aspect of humility is a more positive aspect they had a lot of good fortune to end up in so then to the member that responsibility and to leave it

better. and then it is increasingly understood and that you are catalyzing action and then for them to be fully engaged in how to solve the issue. is not just about just the inclusive process so they are part of making decisions and feel that they have been heard. and the decision doesn't go their way and they understand to get behind it. that is a learned skill maybe that's inherent for some people that they learn over time but it's really important to be able to do that and it does take more time than

top-down leadership but it's far more effective and far more satisfying. >> thank you it has been a fascinating hour. i appreciate your time. we were meeting in person i would hold up your book. it is on my amazon kindle that as i said it's like encyclopedia with individual chapters i would go back and read when these things are in the news that makes it a very