Carney effect: The G-7's new cast bodes well for the world's future

Mint

11 hours ago

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As military warfare grew menacing and fearsome in June, the 50th anniversary G-7 meeting in mid-June became a non-event. But because it was held in Canada during a Canadian presidency of the G-7, it highlighted the arrival on the world stage of Mark Carney, the new prime minister of the host country, who has a global reputation for foresight and adroit management of economic turbulence.
As military warfare grew menacing and fearsome in June, the 50th anniversary G-7 meeting in mid-June became a non-event. But because it was held in Canada during a Canadian presidency of the G-7, it highlighted the arrival on the world stage of Mark Carney, the new prime minister of the host country, who has a global reputation for foresight and adroit management of economic turbulence.
Carney could mark an important start in recognition by the G-7 leadership of the role they must play in the fight to contain the usage of—and damage from—fossil fuels.
Paradoxically, the immediate fallout feared from the West Asia war was that it would choke supplies of those very fuels on which we in India, and the rest of the world, depend so critically for our day-to-day needs. War itself is the most wasteful and indiscriminate use of fossil fuels.
Carney has the distinction of having been governor not merely of the Bank of Canada over a five-year term from 2008 to 2013 beginning six months prior to the global financial crisis, but subsequently of the hoary Bank of England over the seven years from 2013 to 2020, which covered Brexit in 2016 and post-Brexit political turmoil.
He holds a doctoral degree in economics from Oxford University. Economists like to believe that members of their profession, with the requisite macroeconomic understanding and skills, can effectively steer the monetary authority of any country.
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In the event, Carney's tenure as governor of the Bank of England was hugely successful. His reputation for having anticipated the global crisis of September 2008 as governor of the Bank of Canada with a policy rate cut clearly weighed in the decision to appoint him. But then again, he did not face as onerous a task as his counterpart Ben Bernanke in the US. Canadian banks had not been plunged like those in the US, because of stringent banking regulation (by an independent regulatory agency).
The British trust in Carney was well rewarded. Brexit was so messy and politically fraught that the only stable overseeing authority was the Bank of England under a Canadian governor. The late Stanley Fischer also held monetary policy responsibility in the US and Israel, but both were home countries for him.
Carney is, therefore, unique for having been invited on the strength of his known professional competence alone to steer economic policy in a major country other than his own. As Prime Minister of Canada, he can paint on a larger canvas. The G-7 is a club of first movers on fossil fuel usage and it can lead the way to contain the damage that has resulted.
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India, projected to be among the worst affected by global warming, was fortunately among the invitees to the June G-7 meeting. The meeting was overshadowed by compelling events for the host Prime Minister to shift to longer-term—albeit urgent—issues. But evidence of his line of thinking is obtainable from his speeches at the annual Jackson Hole meetings in the US of central bankers, where in 2019 he spoke of the need for concerted action on climate change.
As Canada's Prime Minister, he seemingly went into reverse gear when his first move was to end a nation-wide carbon consumer tax introduced in 2019, which had replaced an earlier patchwork of uneven province-level carbon taxation.
The new levy structure continued to be complicated (it was more of an administered price floor than a tax), and was unpopular despite rebates for poorer households. Carney did, however, retain the tax on large industrial emitters, including the all-powerful oil industry, and cleverly revamped it to incentivize emission reduction directly at the point of emission.
The reformed package is simpler, jettisons the previous parallel focus on revenue generation, and shifts the focus decisively towards the green objective. It is a brilliant example of effective taxation reform towards a single clearly defined objective.
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Carney, as Prime Minister, has spoken of a low carbon housing policy favouring densification over housing sprawl. This is the direction in which settlement patterns in North America must move, but for a politician to even enunciate his support takes courage. However, any reduction in energy intensity can only result from incremental change in the location of housing, which is a slow process.
Also, at the 2019 Jackson Hole meeting, Carney suggested a new synthetic currency, as a network of central bank digital currencies, to replace the US dollar in trade invoicing.
I had difficulty at the time visualizing how that system might work, and why a readily available substitute like Special Drawing Rights (SDRs) might not do as well. Trade invoicing has to be easily understood and operable. But the actual system suggested is not as important as the sponsorship of the idea by a G-7 member.
The G-7 2025 meeting was held in Kananaskis, a 'treaty region' granted to the original tribal residents of Canada. The location offers hope that G-7 countries will take on board the obligations of winners and recognize that when disruptive events take hold, even the winners lose.
The G-7 presidency will pass on to France next year and thereafter to the US.
The author is an economist. Topics You May Be Interested In