Mark Carney yesterday slammed the narrow view of central banks as guardians of stable inflation as "fatally flawed", as he unveiled a "transformative" overhaul of the Bank of England and an extensive senior personnel shake-up at Threadneedle Street.
Delivering the Mais lecture in London, the Governor said orthodox inflation targeting regimes had become a "dangerous distraction" in the previous decade, causing policymakers to miss the rapid accumulation of dangerous risk in the financial system.
"With time and increased confidence policymakers would win that war [against inflation] only to lose the peace," he said.
In the speech, Mr Carney unveiled details of the Bank's "strategic plan", drawn up by the management consultants McKinsey. Mr Carney said his objective over the next three years was to make the Bank work seamlessly towards its twin objectives of creating monetary and financial stability for the UK. He said the goal was to create "One Bank to exploit the synergies and complementarities across our policy functions."
To that end, Nemat Shafik, an Egyptian-born economist, will join the Bank as a deputy governor in charge of markets and banking. Ben Broadbent, currently an external member of the Monetary Policy Committee, will also be promoted to deputy governor in charge of monetary affairs. He will replace Charlie Bean, who steps down at the end of June.
In addition, the Bank said yesterday its chief economist, Spencer Dale, will become executive director for financial stability. The present incumbent in that role, Andy Haldane, moves in the opposite direction to take on an expanded chief economist role. Mr Dale will sit on the Financial Policy Committee, which oversees macro-prudential regulation while Mr Haldane will take up a position on the rate-setting Monetary Policy Committee.
The elevation of Mr Broadbent means the Treasury will need to appoint a new external member of the nine-person committee. The Bank also revealed yesterday that Anthony Habgood, the former chairman of Whitbread, will succeed Sir David Lees as chair of the Bank's Court of Directors, which oversees the work of Mr Carney's executive.
Ms Nemak's background is in international development economics. She is a deputy managing director of the International Monetary Fund and before that was permanent secretary at the Department for International Development. She will sit on all of the key committees, including the MPC, the FPC and also the Prudential Regulatory Committee.
Asked at a subsequent press conference whether the reforms could have prevented the UK's financial crisis if implemented a decade earlier, Mr Carney said Britain could have had "more Canadian outcomes".
Canada's banks were better capitalised and more tightly regulated and rode out the 2008 crisis without needing to be rescued.
Worldly woman: From Washington to World Bank
Nemat Shafik, 51, becomes the first woman to take part in any of the Bank's central decision-making forums since Kate Barker left the Monetary Policy Committee in 2010.
Universally known as "Minouche" – roughly "kittycat" in French – was born in Egypt but her family fled after General Nasser's nationalisations. After studying economics in Washington, London and Oxford she joined the World Bank, becoming its youngest ever vice-president at 35.
There she met her first husband Mohamed El-Erian, who would go on to become the chief executive of the bond giant Pimco.
She is now married to Raffael Jovine, with whom she has 10-year-old twins.