The Growing Challenges for Monetary Policy in the current International Monetary and Financial System
Mark Carney, Governor of the Bank of England
Jackson Hole Symposium 2019
23 August 2019
Ultimately a multi-polar global economy requires a new IMFS [international monetary and financial system] to realise its full potential.
That won’t be easy.
Transitions between global reserve currencies are rare events given the strong complementarities between the international functions of money, which serve to reinforce the position of the dominant currency.
And the most likely candidate for true reserve currency status, the Renminbi (RMB), has a long way to go before it is ready to assume the mantle.
The main advantage of a multipolar IMFS is diversification. Multiple reserve currencies would increase the supply of safe assets, alleviating the downward pressures on the global equilibrium interest rate that an asymmetric system can exert. And with many countries issuing global safe assets in competition with each other, the safety premium they receive should fall.
The deficiencies of the IMFS have become increasingly potent. Even a passingacquaintance with monetary history suggests that this centre won’t hold. We need to recognise the short,medium and long term challenges this system creates for the institutional frameworks and conduct of monetary policy across the world. Given the experience of the past five years, I will close by adding urgencyto Ben Bernanke’s challenge. Let’s end the malign neglect of the IMFS and build a system worthy of the diverse, multipolar global economy that is emerging.