Bloomberg News

Bini Smaghi Says Flexible Monetary System Doesn’t Stop Crises

October 03, 2011

Oct. 3 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi said a more flexible international monetary system does not prevent the emergence of global imbalances and crises.

“There is no credible mechanism for symmetric adjustment of imbalances at work today, even though we now have more flexible exchange rates, more financial innovation, more capital mobility and more private international liquidity,” Bini Smaghi said, according to the e-mailed text of a speech delivered at a conference in Brussels today.

Bini Smaghi also said that “key issuers and holders of reserve currencies pursue domestic objectives independently of what would best serve the global system and even their longer- run interest.” They tend to “produce unsustainable imbalances and fuel vulnerability in the global financial system” as well as a global liquidity glut, he said.

Policy makers around the globe are seeking ways to prevent Europe’s debt crisis from pushing the global economy into recession. Stocks fell today, extending losses from the worst quarterly retreat in almost three years.

Even coordinated global policies are not enough to strengthen resilience “and crises do play a part in producing fundamental changes in the system of policy incentives,” Bini Smaghi said. “For instance, it was not until the euro area sovereign-debt crisis that” member countries’ economic governance “started to be seriously enhanced –- and the list of examples is of course very long.”

--Editors: Simone Meier, Fergal O’Brien

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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