The global economy could run more smoothly if G-7 countries showed the leadership that would strengthen international financial institutions, Bank of Canada Governor David Dodge said today.

In a speech to the Chicago Council on Global Affairs, Governor Dodge said the major industrialized countries, such as Canada and the United States, have benefited over the years from participating in a liberalized, market-based trade and financial order. However, progress in the world economy is threatened by imbalances in global savings and investment, which have been brought about by many countries following policies that impede market-based economic adjustments.

These imbalances could be resolved in an orderly way if market-based adjustments in the global economy were allowed to take place. "To facilitate market-based adjustments, we need to strengthen the institutions that support the global trade and financial order," Governor Dodge said.

Strengthening these institutions will require the support of key emerging-market economies. But it will also require leadership from the same countries – including the United States and Canada – that worked hard to establish these institutions in the first place, Governor Dodge said.

"It is imperative to drive for a multilateral trade deal, through the WTO, to counter the protectionist threat; and to promote a multilateral approach, through the IMF, to resolve global imbalances," Governor Dodge said. "By keeping a common goal in mind, we can remove the impediments to market-based adjustments and be successful in our efforts to defuse the danger of global imbalances."