The following is a speech by Sheryl Kennedy, Deputy Governor of the Bank of Canada given at the 3rd Annual Montréal-Boston Conference on November 4, 2004. The text of the speech was made available by the Bank of Canada.

I'm very pleased to have this chance to address the 3rd Annual Montréal-Boston Conference. It's good to see so many familiar faces from the Canadian and U.S. financial communities here this morning.

Montréal and Boston have had a special affinity for a very long time. Both are port cities, and were first settled a few years apart in the early 1600s. Both are elegant, attractive cities, with populations of about the same size. There is also a long history of trade between the two cities, first by sea and later by railroad and freeway—and now by electronic networks.

The first session on today's conference agenda will discuss an especially interesting example of electronic trade collaboration between the two cities: the Boston Options Exchange, or BOX. With the Boston Stock Exchange acting as its regulatory-services provider, and with the Bourse de Montréal managing its technical infrastructure, the BOX represents the first time a Canadian exchange has been responsible for the daily technical operations of an American exchange.

Although it's been trading for less than a year, BOX has already proven itself a significant player in the equity options market. I understand that by mid-October, the average daily volume was nearly 180,000 contracts—not bad for the "new kid on the block."

BOX is yet another example of the increased integration of the Canadian and U.S. economies. Now, I want to be very clear about what I mean by "integration." The dictionary definition of the word is "to make more unified or harmonious." But today, what I am referring to is the process by which the Canadian and U.S. economies have become more intertwined, through the freer movement of goods, services, and capital between our two countries.

I should note that many of the issues I'll be dealing with pertain to economic relations, not only between Canada and the United States, but with Mexico as well. Given the participants in this conference, I will not be discussing Mexico except in passing. But this does not diminish the growing role Mexico plays in North American economic arrangements.

North American Economic Integration

This morning, I want to spend a few minutes looking at the nature of the economic integration between Canada and the United States, and at some of the similarities and differences between our two economies. I'll also make the point that economic integration doesn't necessarily equate with convergence—in other words, becoming so closely integrated that our economic performance is always similar, and external events affect our economies in the same way.

While Canada and the United States are close trading partners, our economies are very different in some ways—particularly in terms of structure and the way that we are affected by world events. I'll have more to say about that later.

But let me start with some things that we have in common. For example, we do have largely similar economic goals, even if the means by which we achieve those goals aren't always the same. And we both face some very similar challenges in the medium term, as we confront the realities of global economic changes.

Here are some facts and figures. Canada and the United States are the world's largest trading partners—more than $1.8 billion (CAN) worth of goods and services flow back and forth across our borders each day. Canada sends over 80 per cent of its exports to the United States, and is the leading export market for 39 of the 50 U.S. states.