JACKSON HOLE, Wyoming (Reuters) – The world’s big central banks ought to cooperate more by taking into account the global impact of their individual policy decisions, a top policymaker said on Friday, but he was immediately challenged by Federal Reserve Chairman Ben Bernanke.
Jaime Caruana, general manager of the Bank for International Settlements, a global forum for central banks, told some of the world’s most powerful policymakers that they must recapture the common sense of purpose they showed when fighting the global financial crisis of 2007-09.
“Central banks need to take a more international perspective, recognize their collective influence and take into account monetary policy spillovers,” he told policymakers at the annual retreat here, hosted by the Kansas City Fed.
U.S. and European central bankers are working to restore growth on both sides of the Atlantic, while weighing up the costs and benefits of further action that critics say could contribute to an even more serious financial crisis in the future.
Bernanke, in the audience at the luncheon address, did not flatly reject the suggestion, but he noted that a discussion about international monetary policy cooperation also implied cooperation on foreign exchange rates.
“A problem is, of course, that a lot of exchange rate policy is not made by central banks, it is made by finance ministries … so I think you have opened up a much more complicated coordination problem than central banks sitting together and reasoning together.”
Caruana cheerfully agreed that he was absolutely correct — drawing general laughter from policymakers that included the governor of the Bank of Japan and president of the Bundesbank as well as the chief of the U.S. central bank — but stuck to his guns and insisted the question was still legitimate to pose.
Arguing globalization intensified spillovers from financial market disruptions in one country into another, he added that this indicated the need to take the global impact of domestic policy decisions into account.
“This does not necessarily mean monetary policy coordination at the global level, but it does require central banks to better appreciate, internalize and share the side effects that arise from individual monetary policies,” he said.
Caruana also said he was “sympathetic” for calls for central bankers to grant “global considerations” an explicit role in their decision-taking, but doubted this could be formalized.
“The major central banks would not be able to publicly outline the mutual consistency of their policies. Drawing attention to areas of inconsistency and dissent would probably undermine effective cooperation,” he said. (Reporting by Alister Bull, editing by Gary Crosse)
