Top banker urges more risk
Dodge criticizes pension-plan system Economic health at stake, he says
Canada must correct flaws in its pension system to encourage more risktaking and boost the economy’s potential growth, says Bank of Canada governor David Dodge.
“ The task of establishing proper incentives is a difficult one,” Dodge said in a speech yesterday in Montreal. “ For the sake of efficiency and for the future health of our economy, we must get the analysis right, and then we must act.”
Canada’s pension system deters employers from offering defined- benefit plans, which guarantee workers an income level after they retire, Dodge said. Many employees are left managing their savings themselves and are less willing to take risks, which hurts economic efficiency and lowers Canada’s future potential growth, he said. The number of Canadians covered by defined-benefit pension plans has dropped 5 per cent since 1992, Dodge said. Some 5.5 million of Canada’s 32 million people belonged to companysponsored pension plans in the first quarter of this year, Statistics Canada reported in September.
Canada’s economy is at full capacity, Dodge said at a news conference after the speech, adding he would set interest rates ‘‘ accordingly.” The Bank of Canada raised rates in September and October to control inflation, and Dodge said last month he would do so again. Consumer prices jumped 3.4 per cent in September from the same month last year, the largest increase in 30 months, as gasoline prices surged 35 per cent. The Bank of Canada sets interest rates to keep inflation at 2 percent. Dodge also repeated that the Bank of Canada shouldn’t intervene to limit currency fluctuations, but should focus instead on keeping prices stable. The best way to adjust to international changes in relative prices “ is to operate in such a way that we have relatively stable prices and allow the exchange rate to move up and down,” Dodge said.
Canada’s dollar has risen 31 per cent in the past three years, slowing exports that make up 40 per cent of Canada’s $ 1.1 trillion economy. Dodge repeated in his speech that governments could boost efficiency by encouraging competition and mergers among financial institutions.
“ I’ve said, and I won’t add to it, that there is evidence that competition between pillars increases efficiency, and that there is also evidence of economies of scale for banks,” Dodge said in a response to a question from the audience.