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Past Program

Apr 18 - Apr 22, 2009

The Search for Stability: Financial Crisis, Major Currencies and a New Monetary Order

Session 462

Abstract

Current developments in the international monetary system have been marked by the need for central banks and finance ministries worldwide to intervene in order to prevent system collapse, with an initial US reaction followed by a different approach adopted by EU member states. This has come in the wake of a gradual decline in the dollar's use as the main global reserve currency and unit of account for international trade, of strong food-and-energy driven inflationary pressures in the first half of 2008 - at least partly linked to the declining dollar- which have been only halted/reversed by an incipient powerful recession largely projected to soon befall large western economies. The financial system collapse seems to have been averted, setting the stage for tough questions for the day after.

 

The responses have been different across the Atlantic, both in terms of timing and targeting. The US reacted sooner, injecting liquidity, bringing down interest rates, and dealing with failing banks on a case-by-case basis. EU member states reacted later, but much more forcefully in terms of providing blanket guarantees and ruling out bank failures as a matter of principle. The emphases have also been different: buying out toxic assets in the case of the US; buying stakes in banks and guaranteeing new bank lending in the case of the EU. The EU approach won over US policymakers, perhaps showing the way for better policy coordination.

 

The session will bring together central bankers, economists, investors, private sector representatives and academics to address the global financial crisis, its roots and ramifications; to assess the development of financial markets and major currencies in the light of the crisis and to explore ways to stabilize the financial system and improve the governance of global finance. Consideration will be given to questions such as these: How can such crises be avoided in the future? What are the lessons for monetary authorities in this new context - in view of a probable severe recession, dormant inflationary pressures, and still tender or at best weakly recovering markets? What are the implications of the financial crisis for major currencies? What are the potential strategies of East Asian Central Banks and major energy exporters, balancing the need to make optimal use of their resources and portfolios against the risk of triggering abrupt changes that could devalue their existing investments? What role can regional monetary agreements play? What institutions and instruments can help increase the stability and equity of the global financial system?