John Murray, the most senior of the junior deputies on the Bank of Canada's governing council, is as softspoken as they come. That doesn't stop him from landing devastating intellectual blows.
On Tuesday in Washington, Mr. Murray wanted to make the point that China is doing to little to help level global economic imbalances. He ended his presentation with a chart that tracked the values of three currencies since 2002: Brazil's real, the Chinese yuan, and the Canadian dollar.
The dollar and the real, remarkably, have appreciated by about the same amount over that period, by roughly 40 per cent. The two currencies took strikingly different paths to reach the same place, however. The yuan's trajectory is far less dramatic, rising only about 10 per cent over the past decade.
Mr. Murray's point was impossible to miss. As China's economy surged to become the second-largest in the world, dominating global trade, one would expect a far greater change in the exchange rate. But China keeps a tight tether on its currency, aggressively buying U.S. Treasuries to keep the yuan comfortably weak versus the U.S. dollar, and maintaining strict controls on capital.
Capital, like water, flows to the path of least resistance. With limited access to China, investors end up buying financial assets of Brazil, Canada and others instead.
That's okay - to an extent. The global economy needs to get away from its pre-crisis mode of relying on the United States to buy all the exports. But the accumulation of foreign exchange reserves and the continuation of capital controls implies that China remains unwilling to do as much as it could.
"I don't mean to point the finger just at China, but there is a form of inhibition, something that's at play, if not subverting, certainly inhibiting, delaying the adjustment process, not facilitating as it might this needed rotation of demand globally that could certainly put us all on a growth path," Mr. Murray said.
The setting for Mr. Murray's presentation was a conference hosted by the Peterson Institute for International Economics on the "currency wars."
Adam Posen, the head of the institute, predicts bad things if the world's big economies fail to sort out their differences over trade and currencies.
The Peterson Institute is trying to stir a debate over whether the World Trade Organization should treat currency manipulation as a violation of international trade norms.
The argument: A persistent attempt to depress the value of a currency violates the spirit of trade agreements arranged around various negotiated tariff levels. There is language in the WTO treaties that suggest it's illegal to "frustrate" the larger goals of the multilateral trade pact.
There were plenty of people at Peterson Tuesday who were frustrated by China.
A couple of years ago, the Bank of Canada constructed a formula to estimate what the world economy would look like if the members of the Group of 20 made good on their commitments to sustainable economic growth - a pledge that assumes rich countries such as the United States will get a handle on their debts, and that big emerging markets such as China, which heretofore have been focused on exports, re-orient their economic policies to encourage more domestic demand.
The Bank of Canada's work showed what Mr. Murray called a "good solution" that would result in everything being right in the world. China's current-account surplus would narrow to less than 3 per cent of gross domestic product by 2020 from about 6 per cent in 2012, while the U.S. current-account deficit would close to about 1 per cent of GDP from about 3 per cent now.
Canada's central bank also ran "bad" and "ugly" scenarios.
Bad assumes policy makers delay implementing the G20 program, and ugly assumes nothing is done at all. The Bank of Canada showed there is a significant opportunity cost to doing nothing. Half-measures would result in foregone wealth of $6-trillion (U.S.), or about 8 per cent of global GDP, by 2015. Let's not discuss the "ugly" scenario. You get the idea.
The G20 actually has implemented many of the policy adjustments thought necessary in the aftermath of the financial crisis.
America and Europe are resolving their debts - a little too quickly for some economists, but leaders there can't be accused of living up to that end of the bargain.
The banking system is stronger, especially in the United States.
But the ability - or willingness - of emerging markets to de-emphasize exports and stir domestic demand has been disappointing. That's the point of Mr. Murray's graph of the Brazilian, Canadian and Chinese currencies: One of those three is trying less hard than the others.
"We're tracking just above the bad" scenario, Mr. Murray said. "We're a little bit good, a little bit bad, a little bit ugly."