Nor can we control the functioning of the global debt markets or become the regulators of all financial market intermediaries. What we as central bankers can do, however, is to understand the dynamics of the global debt markets – how they are evolving and whether they are sufficiently liquid and transparent. We can also ensure that banks perform their proper role in supporting the trading process through making sound credit decisions. Furthermore, we can enhance the price discovery process by promoting transparency in our own actions. Finally, and most importantly, we can help create conditions in BIS Review 108/1998  –5–  our own economies that will support sustainable, non-inflationary growth. In these ways, we as central banks can encourage the efficient functioning of the credit intermediation process in our countries, and in so doing, promote the welfare of the world economy, of which we are all a part. ***  BIS Review 108/1998
While high food and energy prices curb consumption on these products, they would also encourage investment and increase supply in the long-term. In short, the common view is that central banks have nothing to do but wait for the supplydriven shocks to work out their natural course. However, in the current environment where persistent and rapid increases in food and energy prices have been observed for a considerable period, the prevalence of this view has become questionable – especially in the light of current projections that foresee even higher prices in the near future. As a matter of fact, many countries under inflation targeting regime now project that inflation will converge to the target at the end of 2009 or in 2010, at the earliest. Going through a long period of high inflation is a serious risk for price stability. First, the general price level may shift upwards at a faster rate, as producers and workers in other sectors ask for higher prices and wages in response to the loss of their real purchasing power. The fall in real interest rates due to deterioration in inflation expectations is another risk, since lower real rates will lead to a faster pace of credit expansion. The common factor of these two risks is that persistent supply shocks may turn into demand shocks after a while. Thus, at some point, central banks have to decide to what extent they can tolerate the rise in inflation.