BoE governor calls for closer cross-border cooperation
The Governor of the Bank of England has called on emerging and advanced economies to work together more closely to reduce volatility in cross-border investing.
Delivering the keynote speech at the Institute of International Finance’s 2019 Spring Membership meeting in Tokyo on Thursday, Mark Carney said international capital flows could be an “enormous force for good”, especially for emerging market economies (EMEs).
Traditionally, in cross-border investing the onus is on EMEs to manage risk by strengthening domestic economies and monetary policies. But Carney told delegates advanced economies needed to play a greater role.
“In an independent world, everyone – advanced economies, emerging economies as well as the public and private sectors – is responsible for reducing capital flow volatility and increasing sustainable capital flows in order to meet the challenges of our age.”
Carney argued that EMEs should still “reinforce banking system resilience and deepen their domestic capital markets, particularly to reduce reliance on foreign-denominated debt”. They also needed to continue to develop “macroprudential policy tool kits to guard against excessive credit growth and high levels of indebtedness”.
But he added that following the 2008 financial crisis, that was no longer enough. “In the deceptively simpler time of the pre-crisis world order, ‘keeping your house in order’ was a handy prescription of the G7 to EMEs.
“The experience of successive crisis and shocks, confirmed by the bank of England’s analysts, suggest that advice was once worthy but is increasingly incomplete.
“Now there can be innocent bystanders, but there should be no disinterested observers. We are all response for addressing the fault lines in the global financial systems and its safety net.
“In doing so we will reduce the volatility of capital flows, increase the sustainability of the cross-border investment and meet the great challenges of our age.”
Carney’s speech comes ahead of the European Central Bank’s latest announcement on interest rates. The Eurozone bank meets at lunchtime against a backdrop of a surprise fall in inflation in the Eurozone and the impact of the US-China trade war on the global economy.