ContextSpeech by the Governor of the Bank of Canada in Paris to Paris Europlace and the France-Canada Chamber of Commerce, weeks after a G7 finance meeting there.
Why it mattersSpoken in Paris, the Bank of Canada Governor names what China, the US and Europe should each change to reduce global imbalances.
- Global imbalances are growing again.
- Non-bank financial firms play a larger, less visible role.
- Support for open trade weakens when imbalances rise.
- China should consume more, the US save more, Europe invest more.
- Adjust early before pressures build up.
- Cooperate on financial risks and keep trade and investment open.
Read the speech summary
1. Imbalances and capital flows
Speaking in Paris, Bank of Canada Governor Tiff Macklem welcomed the US-Iran agreement and the easing of energy prices, then turned to the widening of global imbalances discussed by G7 finance chiefs. Trade deficits and surpluses are normal, but when too large and one-sided for too long they spill over through trade, exchange rates and asset prices, and strain relations between countries. China's reliance on investment and exports has created overcapacity and deflationary hyper-competition and sparked tariffs. His message: look at imbalances through capital flows and international investment, and avoid overextending the monetary and financial system, adapting before a crisis forces change.
2. Lessons from history
The gold standard forced adjustment through wages and prices and could not survive the strains of war; interwar tariffs and retaliation deepened the 1930s collapse; Bretton Woods ended in 1971 when domestic priorities overwhelmed the external anchor. The lessons are that excessive imbalances create tension, that when domestic goals override international rules the rules give way, and that shifting costs onto others with tariffs or devaluation fails. The 2008-09 crisis showed how fast stress travels through interlinked finance. Adjustment delayed eventually becomes adjustment imposed.
3. Today's landscape
Imbalances reflect domestic ones: Chinese and European savings exceed investment, so capital flows to the US, whose strong consumption and fiscal deficits leave a historically large negative net investment position. The dollar's reserve role may have let imbalances persist and one-way flows fuel bubbles, possibly now in the AI boom. Meanwhile risk has migrated from better-regulated banks to non-bank intermediaries: hedge funds now buy much sovereign debt using leverage and short-term funding, and dollar stablecoins let flows reverse faster, beyond authorities' sight. The two risks are misallocated inflows stretching valuations, and a sudden reversal.
4. Three priorities
Reducing imbalances means China consuming more, the US saving more and Europe investing more, ideally in a coordinated way, with signs of progress in China's plan, Europe's integration and US deficit ambitions. He urged openness, with Canada and the EU deepening trade ties; investability, creating more safe assets, fast payments infrastructure and attractive investment outside the US through strong institutions, open capital accounts and removal of barriers such as Canada's interprovincial ones; and transparency, with better data on non-banks, foreign exchange and cross-border flows, stress tests reflecting today's speed, and closer work by the IMF, FSB and BIS. Support for openness weakens when imbalances grow or openness is seen as a weakness, but history shows protectionism costs efficiency and fragments markets. Markets cannot price what they cannot see, and while firms manage their own risks, systemic risks can build beyond any single firm's view. Resilience, he concluded, is a choice that does not happen by good intentions alone but by reinforcing systems so they do not break under stress, with responsibility shared between public and private, domestic and international actors.