Guardian: “The global monetary system has become so deeply interconnected that it poses an “incendiary” threat to stability unless a radical new international approach is taken, the Bank of England’s chief economist has warned.”
“Andy Haldane said the world is not currently equipped to deal with the “darkest consequences” of an international monetary system and said a new set of rules and tools at a multilateral level would be needed to lessen the risks it posed.
“The international monetary and financial system has undergone a mini-revolution in the space of a generation as a result of financial globalisation. It has become a genuine system. This has altered fundamentally the risk-return opportunity set facing international policymakers: larger-than-ever opportunities, but also greater-than-ever threats,” he said in a speech at Birmingham University.
“Today, cross-border stocks of capital are almost certainly larger than at any time in human history. We have hit a new high-water mark. The same is probably true of cross-border flows of goods and services and is most certainly true of cross-border flows of information.”
He suggested measures to improve resilience might include an enhanced role and increased resources for the International Monetary Fund, with responsibility for tracking the global flow of funds and as a quasi-international lender of last resort.
Haldane said that part of the problem was that global investors tended to behave in the same way. “There is greater co-movement among similar asset types across countries than among different asset types within countries.”
He said new macro-prudential tools at an international rather than national level would also potentially help.
“If credit cycles are global in nature, there may in future be a case for national macro-prudential policies leaning explicitly against these global factors. This would help curb the global credit cycle at source. It would take international macro-prudential policy co-ordination to the next level.”
….“Yet if instead of banks we consider the financial fortunes of countries; if instead of inter-bank exposures we consider cross-border flows of capital; and if instead of international banking regulation we consider the international monetary system, it is far from clear that lessons have been learned, much less that the international rules of that road have been reformed.”
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