Comment: Carney used to decentralised operation
As well as putting the Commons Treasury committee in its place for criticising his policy of giving markets “forward guidance”, Carney caught everyone out by slamming on the brakes to curb the growing house price bubble (we’ll see if he succeeds).
Not content, he finished the week by saying he stood ready to have “basic discussions” with Alex Salmond regarding the SNP’s plan for a sterling currency union post independence. Of course, agreeing to basic discussions does not indicate Carney’s support for a common sterling zone. But it is proof that he is relaxed about dealing with the monetary policy implications of having different governments operating inside the British Isles. Remember he was head of the central bank in Canada, where bolshy provincial governments have significant autonomy, including capital borrowing. In his five years as boss of the Bank of Canada, Carney’s low-interest policy deliberately helped provincial governments to borrow more, as an anti-cyclical measure.
What about an independent Scotland keeping the pound? Carney lived first-hand with problems caused by the Canadian “loonie” rising against the US dollar, hurting Canadian manufacturers. Expect him, should the occasion arise after 2014, to understand the dangers of exchange rate competition with England’s closest neighbour and second-biggest trading partner.
Nor would Carney want to add unnecessarily to the UK’s already precipitous trade deficit by losing Scottish oil and whisky export earnings.
True, the decision on a currency union will be made by the Treasury, not the Bank. And the super centralist Treasury might baulk at reforming the Bank to have direct representation from Scotland.
Expect Carney to be less concerned. He chaired the board of the Bank of Canada (BoC), which is composed of members from each one of Canada’s provinces, thereby ensuring that monetary policy is made to reflect the needs of the whole nation, not the metropolitan elite.
I’d love to see someone like the feisty Monique Jérôme-Forget – currently the BoC’s board member from Quebec – at Threadneedle Street. She is a former Quebec finance minister and author of a book entitled Women to the Rescue of the Economy.
Not everyone’s happy at Iran rapprochement
I AM not one of those who think the deal over Tehran’s nuclear ambitions is an unalloyed success for the West.
Beware of what you wish for. Removing sanctions could add 800,000 barrels a day (b/d) of Iranian oil to the global market of 89 million b/d, with more following. That could depress the North Sea Brent price below $100 per barrel and US crude to below $85. That’s good for growth in 2014 but it has unexpected consequences.
A slew of developing nations rely on oil exports and they will be hit badly if prices drop. Oil exports furnish half the budget in Russia. The Kremlin needs circa $117 per barrel to cover its budget needs.
Saudi Arabia – no friend of rapprochement with Shia Iran – is also affected. Saudi petroleum is very cheap to produce but the Riyadh regime needs $98 per barrel to pay the bills after boosting public spending to head off internal unrest.
Political spite might lead Saudi to pump more petroleum to undercut US shale oil production – and remind Washington who its friends are.