Bank of Canada governor calls for a global rebalancing as savings pour into the US
Money is flooding into US assets, much of it tied to the AI boom, and that risks inflating valuations, Bank of Canada governor Tiff Macklem warned in Paris.
A painful correction could follow and spill well past American borders, he said.
In his remarks to the Chambre de commerce France-Canada, Macklem laid out two risks from the one-way flow of capital into the United States.
Large inflows could be misallocated, stretching valuations in equities and credit, or they could reverse suddenly.
As he put it, "Either outcome could send stress far beyond US borders."
Canada would not be spared.
Canada "is not a contributor to excessive global imbalances," Macklem said, but trade tensions are knocking it.
The country "could be sideswiped if financial stability risks crystallize," he said.
The Bank of Canada said global imbalances narrowed after the 2008–09 financial crisis but are widening again, with some countries running large surpluses while others borrow and spend.
The United States draws heavy foreign capital because Americans tend to spend more than they save, so higher savings from China and Europe flow toward it, the central bank said.
That one-way flow, visible again in massive AI investment, can fuel asset bubbles much as it did before the global financial crisis, Macklem said.
The US dollar's dominant role in global finance may be prolonging the problem by encouraging capital to keep flowing into the country, according to the Bank of Canada.
Macklem called cross-border finance "a good thing" but warned that excess flows "widen trade gaps, fuel protectionism and distort asset prices."
Capital gets misallocated and stability risks climb, he said.
Macklem also flagged a shift in who moves capital across borders.
As bank regulation tightened, funding needs are increasingly met by non-bank intermediaries such as hedge funds, private finance companies, pension funds and other asset managers.
Those players generally do not face the same reporting requirements or monitoring as banks, Macklem said, which adds to the risk.
Imbalances usually adjust slowly as exchange rates move and capital and trade flows shift, but delayed adjustment lets them persist, according to the Bank of Canada.
"The common thread is clear: when adjustment is delayed, imbalances persist, growth is held back and risks build across the global system," Macklem said.
The backdrop is US President Donald Trump's tariffs, imposed to onshore manufacturing and shrink the US trade deficit, which have upended global trade and fed protectionism, Reuters reported.
To ease the strain, Macklem said deficit and surplus countries first need to agree the problem is rooted in domestic imbalances: China needs to consume more, the United States needs to save more and Europe needs to invest more.
The diagnosis tracks a March G7 memo, the Financial Post reported.
The memo found that excessive deficits and surpluses reflect unbalanced domestic growth in China, the EU and the US.
Macklem set out three priorities.
Countries such as Canada and the EU should deepen trade and investment even as the US pulls back from open trade.
The world should also create more places for global savings to go, including more safe assets, since savings now flow disproportionately to the US.
And countries should improve transparency through better data and regular stress testing, with the IMF, the Financial Stability Board and the Bank for International Settlements flagging risks earlier.
A better path would adjust the system before pressures hit a tipping point, Macklem said.
He closed bluntly, saying resilience is a choice that comes not from good intentions but from "reinforcing systems so they don't break in times of stress."
