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How Stephen Poloz plans to remake the Bank of Canada

First things first. When you want to mention the new governor of the Bank of Canada in conversation, think of Edgar Allan Poe and laws: Poe-Laws is what to say.

That wasn't obvious to a lot of people in early May when Stephen Poloz was presented as Canada's ninth central bank governor. So persistently was Poloz's Ukrainian surname being mangled that a spokesman sent reporters a mass e-mail explaining how it should be pronounced.

Four months later, Poloz says the attempts to rhyme his name with Bozo are fading away. So it goes in the rock-star era of central banking: Stephen Poloz is on his way to becoming a household name.

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His embrace of celebrity has been a measured one. He declined all interview requests after his appointment, and in the months that followed he talked to only two publications: the alumni magazines of Queen's University in Kingston, from which he graduated in economics in 1978, and Western University in London, where he earned a master's in 1979 and a PhD in 1982. Otherwise, he has kept a low profile, sticking to the Bank of Canada's template script.

This deliberate approach, apparently, is Poloz's way. "He paces himself well," says Jim Dinning, who was chairman of Export Development Canada's board of directors when Poloz became the Crown corporation's chief executive in 2011. But now Poloz is ready to step out of the shadow of his two predecessors: Mark Carney and David Dodge, whose presence in the federal sphere eclipsed that of most front-bench cabinet ministers. When the Bank of Canada agreed to give Report on Business magazine the first in-depth interview with Poloz at the end of August, it proposed three possible dates for a face-to-face meeting. I got greedy, and countered that I would take two of the three options, in Ottawa and Calgary. Poloz accepted.

Poloz was keen to talk about how he intends to deepen the central bank's dialogue with executives, both to enhance the bank's collection of anecdotal data, and to ensure Canada's primary economic actors understand the country's monetary policy. "If uncertainty is holding you back, then I do see us having a role to play and telling a coherent story," he says. "That's one element of uncertainty that we have a crack at."

The governor started the process in Calgary, where he had breakfast with executives. Poloz knows he could pick up the phone, but he relishes face time. He intends to hold sessions similar to the one in Calgary as often as he can.

My conversations with Poloz ranged beyond the central bank's talking points to his leadership style (like Barack Obama, he leads from behind); to the exchange rate (still a very important factor for businesses, but there is little the central bank can do to influence price); to the future for Canadian manufacturing (there is one).

Refreshingly, Poloz is comfortable with the words "I don't know," and clearly relishes the pursuit of an answer. He tells me twice over our two days together that he has told the bank's staff that they will tell their grandchildren about the work they'll do over the next few years. When I suggest that the fight against the 2008-2009 financial crisis will make for better war stories, Poloz stops just short of calling that the easy part. "We were fighting fires, but it was not a cerebral leap forward."

And at one point, it became clear that whatever was keeping Poloz out of the limelight, it wasn't shyness—when he answers a question that is none of my business.

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It was almost universally believed that Carney would be succeeded by Tiff Macklem, his No. 2, who had proven himself an able and dedicated policymaker during the financial crisis, when he was at the department of finance. But Finance Minister Jim Flaherty went against consensus. Even though Poloz had been absent from the inner sanctum of economic policymaking since 1995, when he quit his job as the Bank of Canada's head of research to join Montreal-based advisory firm BCA Research, Flaherty nonetheless gave him the nod.

Poloz's dark-horse status had nothing to do with a lack of ability. He spent the first 14 years of his professional life at the Bank of Canada, and co-workers talked about him as a future governor. His PhD thesis, "The Demand for Money in a Multicurrency World," was so strong that it spawned three academic journal articles, a rare accomplishment. Poloz's research at the Bank of Canada contributed to the groundbreaking decision to adopt an inflation target in 1991.

Still, in a period when central banking is preoccupied with correcting the mistakes that led to the financial crisis, Flaherty chose a governor with scant direct experience with the cut and thrust of financial markets. Accordingly, Poloz got a thumbs-down from Thorsten Koeppl, a Queen's economist. "Tiff has outstanding international recognition through his work within the G20 as the deputy minister of finance—Poloz cannot match that," Koeppl told The Globe and Mail.

There is a sense in Ottawa that Poloz was actually helped by the drumbeat of support for Macklem. "When something with this government is inevitable, this government will sometimes go out of its way to say, 'Screw all you guys who believe in inevitability,'" says Dinning, a former Conservative cabinet minister in Alberta. "There are layers, upon layers, upon layers of why things happen, but I would say that there was just a sliver of a layer of that [contrariness] that was to Steve's benefit."

I ask Poloz if things are awkward with Macklem, who remains senior deputy governor, a role equivalent to chief operating officer. He pauses for a moment: "That's a highly personal question."

True enough. The career paths of the two men have been intertwined. Macklem studied at Queen's and Western a few years after Poloz, who recruited the younger man to the central bank from Western in 1984.

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Poloz looks at his press secretary and asks half-jokingly if he has to answer the question. She tells him that he doesn't. But he does.

"There's nobody I'd rather have beside me," Poloz says. "I've known him for over 30 years and we work great together. We're good friends. I don't know what else to say about that. We share a passion for it. We love doing it every day. He's fantastic. It doesn't get any better than that."

Macklem has kept a low profile since he was passed over. Around the central bank, it's said Macklem has been stoic. When I asked to speak to him, I was sent the same anodyne statement he issued on the day Poloz was named governor.

To hear Poloz tell it—metaphorically, as is his wont—the guy who wears the "C" on a hockey team plays best when surrounded by a strong crew. Poloz says he sees himself as a set-up man, happy to let others have the glory. He dislikes how the media and markets personify the policymaking process. "My style is not to lead with what I think, but to sit back and let 'er go," he says.

In this, he is like U.S. Federal Reserve Chairman Ben Bernanke, who has encouraged debate among his colleagues as a way of eroding the cult of personality that characterized the reign of his predecessor, Alan Greenspan. Poloz says he would like to convince the public that policymaking is a team sport. The surest way to achieve this would be to allow the deputy governors the freedom to do more publicly than just echo the governor, as is Bank of Canada custom.

That change is on the agenda. But no one should expect the kind of free-for-all that goes on in Washington. Poloz hints that the open disagreement among Fed officials over when to begin winding down their bond-buying program—the most potent weapon left in the bank's arsenal for keeping downward pressure on interest rates—contributed to avoidable market volatility this summer. "At a minimum, I would say that I wouldn't want monetary policy to be a source of uncertainty," he says. The American and Canadian approaches to communication both have their "strengths and weaknesses," he adds. "I like our model."

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Poloz's most important task as governor will be coaxing the wallflowers in Canada's business community to get off the sidelines. Perhaps it's fortunate, then, that his first gig, as a teenager, was deejaying at the Whitby Curling Club. He learned early how to read a crowd.

Stronger economic growth is contingent on more business investment. The alchemy concocted to avoid a depression—ultralow interest rates and heavy public spending—has lost its power. The next phase of the rebound is dependent on companies ramping up production and finding new export markets. This isn't happening. Merchandise exports declined 0.6% in July from the month before. Investment intentions are getting weaker, not stronger, according to the Bank of Canada's quarterly survey of executives.

Carney was inclined to chide Canada's corporate chiefs as if he were coaching a team of underperformers. He would lecture them on the need to seek markets further afield than the United States, and he characterized their impressive cash hoard as "dead money."

Poloz, more forgiving, has used the first few months of his mandate to counsel patience, leaving time for "Mother Nature" to do her work. At a time when central banks are creating trillions of dollars to purchase bonds, freezing interest rates at record-low levels and making extraordinary pledges to keep borrowing costs low for years to come, Poloz's suggestion that there is little to be done but wait can sound almost as if he's resigned to whatever fate has in store.

Certainly he isn't doctrinaire. He says he believes economic policy can make a difference in people's lives. A sense of "public purpose" led him to the Bank of Canada as a young man; he felt an "empty spot" during his time away. He defends the activist policies the world's central banks have deployed since the crisis, and disagrees with academics who say that he and his counterparts should reverse course immediately. "Everybody wants to get back to normal as quickly as possible," he says. "That's what people should trust us to do."

In his world view, the powers of a central banker are confined by the laws of nature. At the time of his appointment, it was said that Poloz's closeness to exporters could mean he will be inclined to try to weaken the Canadian dollar. That seems unlikely. Poloz says monetary policy can influence the exchange rate or it can influence inflation; not both simultaneously. "You can really only control one thing," he says. "The thing we care most about is inflation, so we're not going to ever deviate from that just because something about the dollar is bugging us."

As chief economist at EDC, which helps secure international sales by providing financing and insurance, part of Poloz's job was telling Canadian companies what was going on in the world. Later, he was put in charge of financing, even though he had no direct experience in banking. He was promoted to chief executive even though he had never managed an institution.

This chunk of his resumé has prompted some to describe Poloz as a "banker." EDC lends a lot of money, but its mandate is restricted to exports and it avoids competing with private banks. It's no Goldman Sachs. But its chief executive officer does end up talking to a lot of executives: Poloz says he met with upward of 70 in the past year. "We really liked him at EDC," says John Manley, the former federal Liberal cabinet minister who now runs the Canadian Council of Chief Executives. "He would come to our meetings and just spend time talking to CEOs."

Poloz has an intimate understanding of the way business operators think. He switches back and forth between the language of a central banker and the language of a business operator like no other policymaker I have witnessed in more than a decade of reporting on them. He recognizes that while an economist's list of uncertainties might include the U.S. growth rate and European financial stability, an executive's list of uncertainties could include not only those things, but also whether he or she will get a permit to build a new factory or whether oil is more likely to be shipped by rail or pipeline 10 years from now.

EDC's mandate was temporarily changed during the financial crisis to allow it to lend more widely. Poloz says the program saved some imperilled companies, but not all. "You didn't win every week," he says. That experience is serving him well now because he can see the blind spots in the central bank's models and assumptions. He reasons that exports are lagging behind their historical pace because the recession left Canada with fewer exporters to make those sales. When I say that all the cash companies are sitting on suggests they might need some kind of shove to get them back in the game, Poloz looks almost annoyed. "You mean, like badger them?" he says.

He has perfect confidence that companies will respond as soon as the orders start coming in. "The reality of business is, they have to sell stuff."

He mentions CGI Group Inc., the provider of back-office IT services that has grown from a handful of people in Quebec to tens of thousands of employees around the world. Poloz believes Canada's trajectory will depend on how many new CGIs emerge in the years ahead. And there's no easy indicator of that number.

"How can I foresee stuff like that?" asks Poloz. "All I want to do is make sure conditions are there as best as we can make them so the system will work."

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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