For example, putting some temporary restrictions on cross-border movement of capital could give some but not complete independence of monetary policy. But how do we reconcile independence and co-operation? In my view, we can and should act to enhance co-operation between public authorities, based on at least two elements: Ruling out any currency war, as we clearly stated at the meeting of the International Monetary and Financial Committee in Bali last month. I quote the unanimous communiqué: “[We] will not target our exchange rates for competitive purposes”. Trade multilateralism is at risk, but financial and monetary multilateralism still stands fast. Second, as the G20 Eminent Persons Group (EPG), led by Tharman Shanmugaratnam, rightly stressed in its recent report, we need to put in place a reliable Global Financial Safety Net (GFSN) before the next crisis and co-ordinate its different layers. This should include an “IMF standing liquidity facility”. The GFSN is the best insurance we can get against the risks created by economic divergence and it comes at a limited cost. I know that Governor Kuroda is very committed to this issue too. ** Let me conclude by quoting a Japanese proverb: “A frog in a well knows nothing of the great ocean” [“I no naka no kaeru taikai-o shirazu”]. In these uncertain times, the temptation is to look inwards, but that would be exactly the wrong thing to do.
In my view, transmission of monetary policy in this cycle is not weaker but slower, for three reasons: The starting point: the balance sheet of corporates as well as of households was very strong after the exceptional Covid support; Fixed rate mortgages have significantly increased in share, and are now predominant in many jurisdictions. It's nevertheless good news for financial stability; The higher proportion of services in the economy, which are less directly sensitive to interest rates. Non-housing services now represent 49% of Core HICP basket in the euro area, compared with 41% in 2001. In a recent speech,1 I suggested that the lag could be up to two years. Hence, "length" is still more important than "level", to quote the two dimensions mentioned by Christine Lagarde recently2. We stated in our last Monetary policy statement that "the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium term target and will be kept at those levels as long as necessary". I think we are close to the former (levels), and should be now sufficiently patient on the latter (duration). In other words, as transmission is of the essence, so is the persistence of our monetary policy. 1/2  BIS - Central bankers' speeches  1 Villeroy de Galhau, F., Monetary policy transmission: where do we stand?, speech, 22  May 2023 2 Lagarde, C., Breaking the persistence of inflation, speech, 27 June 2023  2/2  BIS - Central bankers' speeches