Committee on the Global Financial System An international forum for central banks The three elements of the role of central banks in international finance, which I have just mentioned, understanding markets, formulating policy recommendations for strengthening the financial system, and containing crises when they happen, have always been played by central banks in order to maintain the stability of the domestic financial system.
On the one hand, higher interest rates may be required to dampen an investment boom. On the other, lower interest rates may be needed to moderate the inflow of short-term speculative funds. In these circumstances, monetary policy needs assistance from fiscal policy: a budget surplus may be needed to curb domestic demand, and to provide the financial resources to sterilise the foreign exchange inflow.