AIX-EN-PROVENCE, France (MNI) - Foreign exchange rate tensions and conflicts among national policies can best be countered by pursuing the international cooperation set up during the crisis, European Central Bank Governing Council member Mario Draghi said Friday.
Introducing the topic "Currency Wars" for a round table here, the governor of the Bank of Italy hesitated to use a phrase evocative of "disasters" but acknowledged the "reality" of national monetary policies that create undesirable spillovers.
A key source of problems is that global imbalances "are now growing again," he said. Indeed, managing the current situation is now "more difficult" than countering the crisis.
With the exception of Germany, most advanced economies are plagued by sluggish growth and high deficits and debt, which mean that stimulus measures must be unwound, Draghi observed. In emerging economies, by contrast, the main problem is "overheating", which leads to high interest rates and capital inflows and, in some cases, capital controls.
Rebalancing global demand, for example with more savings in the US and more domestic demand in China would be "very desirable," he said, while conceding that imbalances will be around for "awhile".
In order to finance these imbalances, "resilient capital markets" are needed, which in turn calls for the pursuit of regulatory reform, so that the financial system is not a cause of the problem but rather an actor in resolving it, he said.
At the same time, high deficits and debt must be reduced, but "not through inflation," since this could lead to protectionism, the central banker stressed.
The "very promising" cooperation that emerged during the crisis within the G20 group could provide the framework for combatting these problems, he said, arguing that it could help cope with the legacy of the crisis.
Returning to the problems of Europe, Draghi underscored the importance of price stability in holding down interest rates. The reason that the "real cost of credit" for business is so high is the risk premia lenders charge. Public debt and deficit levels are clearly behind high government and business borrowing rates.
Fortunately, medium-term price stability is not questioned by the markets, he said. "Otherwise you would see even higher risk premiums!"
Citing vast academic research, Draghi argued that monetary policy alone cannot assure the twin objectives of price stability and fixed exchange rates. Indeed, forex rates are not part of the mandate of the ECB or the Federal Reserve, he noted.
Unlike the Fed, the ECB's mandate does not explicitly include furthering growth and employment, he noted. This does not mean the ECB "doesn't care" about these goals, but rather it supports them through its primary mandate of price stability, he explained.
Source: http://imarketnews.com
No comments:
Post a Comment