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00:00SENIOR DEPUTY GOVERNOR, CAROLYN WILKINS. I WANT TO START WITH POLICY. YOU ' VE BEGUN THE PROCESS OF NORMALIZATION HERE. THE BANK HIKED TWICE IN SECESSION AND THEN TURNED MORE CAUTIOUS. WHAT CHANGED IN YOUR PERCEPTIONS OF THE RISK AND YOUR ASSESSMENT BETWEEN THOSE TIMES? CAROLYN: EFFECTIVELY, WE DID INCREASE INTEREST RATES IN JULY AND THEN IN SEPTEMBER. THIS IS ON THE BACK OF AN ECONOMY THAT IS PROGRESSING QUITE STRONGLY. WE HAD 4.5% GROWTH IN THE SECOND QUARTER. GROWTH IS MORE BROADLY BASED. WE CAN SEE THE EFFECT OF THE OIL PRICE SHOCK IS LARGELY BEHIND US. WE ' VE ARE DECREASED INTEREST RATES BY 50 BASIS POINTS. -- WE HAVE DECREASED INTEREST RATES BY 50 BASIS POINTS. JULIA: WHERE DO YOU SEE YOURSELF NOW? IT ' S DATA DEPENDENT? CAROLYN: WE WERE CLEAR THAT WE THINK OVER TIME THAT LESS MONETARY STIMULUS IS LIKELY TO BE APPROPRIATE. AT THE SAME TIME, WE WERE GOING TO BE CAUTIOUS ABOUT IT. THAT COMES FROM THE FACT THAT WE ARE LOOKING CLOSELY AT THE INFLATION PROCESS, WHETHER THE PHILLIPS CURVE STILL HOLDS, AND TO SEE THE EFFECTS OF THE INTEREST RATE INCREASES WE ALREADY DID ON THE ECONOMY. JULIA: LOOK AT THE CURRENCY. WE DID SEE THE CURRENCY STRENGTHEN AS A RESULT OF THE SYKES. TO WHAT EXTENT DO YOU SEE THAT DOING THE WORK FOR YOU HERE? CAROLYN: MARKETS WILL DO WHAT MARKETS DO. OVER THE SUMMER, WHAT WE SAW IS AN INTERPLAY OF WHERE MARKETS SAW A RELATIVE MONETARY POLICY GOING IN TERMS OF THE FED AND THE BANK OF CANADA AND CHANGES IN COMMODITY MARKETS. JULIA: YOU GAVE A SPEECH BEFORE THOSE TWO HIKES AND TED LOW-INFLATION IS NO INDICATOR OF PAST SLACK. CAN WE GET ANY SENSE OF HOW IMPORTANT INFLATION IS TO YOU TODAY IN TERMS OF DECISION-MAKING COMPARED TO THE PAST? IS IT LESS IMPORTANT? CAROLYN: INFLATION IS ALWAYS EXTREMELY IMPORTANT. IT IS OUR ONLY TARGETED THE FUNCTION OF INFLATION IS A FUNCTION OF WHAT ' S HAPPENING IN ENERGY MARKETS AND GAS PRICES AND WHAT ' S HAPPENING IN TERMS OF UNDERLYING SUPPLY AND DEMAND PRESSURES. WE DON ' T SEE THAT RELATIONSHIP HAS GONE AWAY COMPLETELY. THAT MEANS INFLATION TODAY IS GOING TO BE A FUNCTION OF WHERE PAST SLACK WAS. AS WE LOOK FORWARD AND SEE SLACK IS BEING ABSORBED, THAT DRAG ON INFLATION WILL GO AWAY. JULIA: WHAT IS MORE IMPORTANT IN TERMS OF POLICY? CAROLYN: IT DEPENDS ON THE SOURCE OF THE SURPRISE. FROM A TOTAL INFLATION POINT OF VIEW, YOU KNOW THAT 75% OF THE VARIABILITY IN THAT IS SIMPLY DUE TO CONSUMER AND ENERGY PRICES. THE OTHER IS AN INDICATION OF WHERE THE ECONOMY MIGHT BE GOING IN THE FUTURE, WHERE THOSE WAGE PRESSURES WILL BE, HOW THE LABOR MARKET IS GOING TO PERFORM. JULIA: THE RELATIONSHIP WITH THE PHILLIPS CURVE, WHY HAVEN ' T WAGES BEEN STRONGER? A LOT OF PEOPLE ARE QUITE MYSTIFIED HERE. CAROLYN: IT IS A GLOBAL PHENOMENON. WHAT SEEMS TO BE HAPPENING IS THAT YOU SEE STRONG LABOR MARKET GROWTH AND LOTS OF EMPLOYMENT. THERE ' S A LOT OF THEORIES OUT THERE. SOME ARE JUST GLOBALIZATION AND SUPPLY CHAINS MAKING LABOR LESS COMPETITIVE. FOR CANADA, THERE ' S OTHER EXPLANATIONS. IT ' S A FUNCTION OF THE LEGACY OF THE OIL PRICE SHOCK. GOOD PEOPLE MOVING FROM ENERGY INTENSIVE INDUSTRIES WITH HIGHER WAGES TO GET NEW JOBS IN INDUSTRIES THAT MAY PAY LESS. THERE ' S STILL SLACK IN THE LABOR MARKET. WHICH GROWTH WILL BE A LITTLE SLOWER. -- WAGE GROWTH WILL BE A LITTLE SLOWER. WAGES SHOULD START TO RISE. JULIA: DO YOU THINK THE RELATIONSHIP IS WEAKER BECAUSE OF ALL THE REASONS YOU JUST SUGGESTED? THE RELATIONSHIP IS SOFTENED NOW. CAROLYN: IT IS TOO EARLY TO TELL. WE HAVE TO GET THROUGH THE CYCLE. THOSE ESTIMATES CAN CHANGE OVER TIME. SOME OF THE THEORIES RELATED TO GLOBALIZATION, WE DON ' T SEE EVIDENCE IN THE DATA TODAY. WE ABSOLUTELY NEED TO KEEP AN OPEN MIND BECAUSE THAT COULD CHANGE OVER TIME. JULIA: I WANT TO TALK ABOUT NAFTA AS WELL. YOU ' VE TALKED ABOUT THE TRADE RELATIONSHIP WITH FORECASTS FOR GROWTH AND INVESTMENT. DO YOU HAVE A CONTINGENCY PLAN IN PLACE IF THE NECK TO -- THE NAFTA TALKS FAIL? CAROLYN: WE ' VE GONE OUT TO TALK TO BUSINESSES AND SEE HOW THIS UNCERTAINTY IS RELATED TO TRADE AGREEMENTS AFFECTING YOU AND YOUR BUSINESS. CANADIAN BUSINESSES ARE TELLING US WHEN THEY ARE THINKING ABOUT INVESTMENT, THEY NEED TO BE MORE CAUTIOUS. WE HAVE TAKEN THAT INTO ACCOUNT. IN TERMS OF WHAT WILL HAPPEN IN THE FUTURE, THERE ' S TOO MANY POSSIBILITIES FOR US TO FACTOR THAT INTO POLICY AT THIS STAGE. JULIA: ARE THOSE BUSINESSES FRIGHTENED? INVESTMENT POTENTIAL CONCERNS BECAUSE WE HAVE UNCERTAINTY THAT WE DON ' T KNOW HOW TO TACKLE AT THE STAGE. ARE THEY VERY CONCERNED GIVEN THE RHETORIC IN PARTICULAR? THESE TALKS COULD FAIL. CAROLYN: OF COURSE THEY ARE CONCERNED. WE HAVE A BUSINESS OUTLOOK SURVEY THAT SHOWS BUSINESSES ARE VERY OPTIMISTIC ABOUT THE MANNED. -- ABOUT DEMAND. MANY ECONOMIES ARE EXPERIENCING POSITIVE GROWTH. WHEN YOU COMBINE IT WITH CANADIAN GROWTH BEING GOOD AS WELL -- AT THE SAME TIME, THAT UNCERTAINTY, WHAT THE PAYOFF WILL BE FOR FUTURE INVESTMENT, THAT IS CLEARLY TOP OF MIND. CANADIAN BUSINESSES ARE PLANNING ON INVESTING IN CANADA. THAT ' S WHY OUR INVESTMENT PROFILE SHOWS AN UPWARD TREND. JULIA: HOUSEHOLD DEBT, THIS IS A CONCERN FOR THE CENTRAL BANK AT THIS POINT. DOES IT MAKE YOU MORE OR LESS LIKELY TO HIKE RATES AT THIS STAGE? CAROLYN: THE FACT THAT HOUSEHOLD THAT HAS RISEN QUITE MARKEDLY IN THE LAST COUPLE OF YEARS IS A FACTOR IN OUR INTEREST RATE DECISIONS BECAUSE WE EXPECT THAT INTEREST RATE SENSITIVITY WILL BE STRONGER THAN IN THE PAST. WE FACTOR THAT INTO OUR FORECASTING MODEL. WE HAVE BUILT IT INTO OUR NEXT VERSION OF THE FORECASTING MODEL. THIS IS THE KIND OF THING THAT WE HAVEN ' T SEEN OVER HISTORY. WE NEED TO BECAUSE HIS AND WAIT AND SEE. THAT ' S WE NEED TO BE CAUTIOUS AND WAIT AND SEE. JULIA: I WANT TO TALK ABOUT THE HOUSING MARKET. THIS COULD BE A CONCERN AT SOME POINT IN THE FUTURE. I KNOW YOU HAVE FOCUSED ON MACRO PRUDENTIAL TALKS. HOW ARE YOU LOOKING AT THIS? WHAT WAS YOUR INVOLVEMENT? CAROLYN: YOU ARE RIGHT FOLKS ON TORONTO. THERE ' S ALSO VANCOUVER. -- YOU ARE RIGHT TO FOCUS ON TORONTO. THERE ' S ALSO VANCOUVER. THERE ARE FUNDAMENTAL SUPPLY ISSUES. THAT HAS LED TO QUITE A RAPID INCREASE IN PRICES IN A WAY THAT CREATED CONCERNS FOR US THAT THEY WERE EXPECTATIONS THAT COULD BE TROUBLING TO BOOM BUST CYCLES. THE SUPERINTENDENT TOOK SOME MEASURES TO ADDRESS THAT,. PARTICULARLY ON THE HOUSING FINANCE SITE BY TIGHTENING FINANCE RULES TO MAKE SURE THE MORTGAGES THAT WERE WRITTEN WERE HIGHER QUALITY. THAT HAS CAUSED SOME SLOWDOWN IN THE PRICES. YOU SEE A STEEP DROP IN VANCOUVER. IT HAS STARTED GOING UP AGAIN. FUNDAMENTALS REASSERT THEMSELVES EVERY WHILE. JULIA: DO YOU SPEAK TO BERKSHIRE HATHAWAY TO FACILITATE THE ARRANGEMENT THAT TOOK PLACE? CAROLYN: THE LETTER EXPERIENCED AND IDIOSYNCRATIC EVENT -- THE SECURITIES COMMISSION HAD ISSUES WITH THEIR DISCLOSURES. THAT WAS A TRIGGER FOR SOME LIQUIDITY ISSUES THAT THEY FOUND DIFFICULT TO ADDRESS. OUR ROLE IN THAT WAS REALLY TO UNDERSTAND THE SITUATION AND SEE WHAT IT MEANT FOR FINANCIAL STABILITY, WHETHER THERE WAS THE POSSIBILITY OF CONTAGION. THE RULE OF ANY CENTRAL BANK IS TO ACT AS THE LENDER OF LAST RESORT. JULIA: YOU ARE LEADING THE BANK ' S RESEARCH INTO CRYPTOCURRENCIES. YOU SAID THIS WILL NOT BE SOMETHING THAT IS MAINSTREAM OR A CASH REPLACEMENT AT THIS TIME. HOW CONCERNED ARE YOU? THERE ' S A BUBBLE. THE UCF BUBBLE THAT SHOULD DO YOU SEE A BUBBLE -- DUAL USE SEE A BUBBLE -- DO YOU SEE A BUBBLE? CAROLYN: THIS IS A SECURITY. THAT ' S HOW IT IS TREATED IN CANADA. THE TECHNOLOGIES THAT UNDERPIN IT, IT PROVIDES THE OPPORTUNITY TO CREATE EFFICIENCIES THAT COULD BE BENEFICIAL TO MARKET PARTICIPANTS AND BUSINESSES AND HOUSEHOLDS. JULIA: WHAT ABOUT INITIAL POINT OFFERINGS? YOU ARE AT RISK OF LOSING YOUR ENTIRE CAPITAL INVESTMENT IF YOU GET INVOLVED IN THESE THINGS. DO WE NEED TO SEE MORE OF THIS? CAROLYN: I ' M NOT A SECURITIES REGULATOR. IT IS NOT THE BANK OF CANADA ' S ROLE TO COMMENT ON ANY SPECIFIC IPO. THESE LOOK MORE LIKE SECURITIES TO ME THAN A CURRENCY/ THEY SHOULD BE REGULATED AS SUCH. JULIA: YOU DON ' T SEE FRAUD HERE. YOU ARE THE MOST SENIOR WOMAN AT THE BANK. THERE HAVE BEEN RUMORS SURROUNDING YOUR FUTURE CAREER AT THE BANK IN PARTICULAR. THE GOVERNMENT ' S ROLE WILL LIKELY COME UP AS AN OPTION IN 2020. WOULD YOU LIKE TO LEAD THE BANK OF CANADA? CAROLYN: I ' M 3.5 YEARS INTO MY MANDATE. IT ' S A SEVEN-YEAR MANDATE. I VERY MUCH ENJOY WORKING FOR THE BANK. IT ' S A GREAT PRIVILEGE TO WORK WITH REALLY SMART PEOPLE WHO ARE DEDICATED TO CANADA AND WE HAVE A GREAT AGENDA GOING FORWARD IN TERMS OF LOOKING AT BIG ISSUES WITH THE MONETARY POLICY FRAMEWORK, DIGITAL CURRENCIES TO THINK ABOUT AND MANY OTHER SUBJECTS THAT I WILL BE HIGHLY INVESTED IN. JULIA: YOU ARE A BUSY

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BOC's Wilkins on Canada's Economy, Nafta and Bitcoin

Carolyn Wilkins, Bank of Canada senior deputy governor, discusses the state of the Canadian economy and her views on cryptocurrencies with Bloomberg's Julia Chatterley on "Bloomberg Markets." (Source: Bloomberg)