As the representative of a central bank, I must add that it is interesting to at least toy with the idea of how a global currency and global monetary policy would look. But for the time being this will probably remain no more than an intellectually stimulating vision. At global level, integration needs to go much further, and the economies become more synchronised, if the long-term gains of fixed exchange-rate cooperation are to outweigh the risks. In the long term, it is not inconceivable that a trend will arise towards large regional currency blocs with single currencies, but with flexibility between them. Within these blocs, it will be possible to reap the advantages of integration fully, while the risks will be limited by increasingly similar conditions in the countries taking part in the common currency. Competition between these areas regarding which has the dominant reserve currency may increase gradually. The dollar’s unique position will weaken, just as we are seeing today with a number of Asian central banks planning to increase their assets in euro and reduce those in dollars. Let us hope that there will also be cooperation between the regions, so as to give the world greater stability, development and continued integration. BIS Review 47/2003  5
[4] At the same time, we know that capital releases implemented by authorities, such as Countercyclical Capital Buffers (CCyB) cuts, did support lending, even for firms that were not close to breaching their nonreleasable buffers. [5] What does this evidence imply for policy? First, let me recap two key concepts: usability and releasability. A regulatory buffer is said to be usable if banks are permitted to operate normally even if their capital ratios decline below it. In some cases, firms may be subject to some consequences such as automatic constraints on capital distributions, although this is not always the case. [6] A regulatory buffer is releasable when the authorities can reduce it – including down to zero if need be – freeing up the capital resources. In the current Basel framework, only the CCyB is releasable. All other buffers that sit above minima are in theory usable but not releasable, as Sam noted in ‘Bufferati’. And the evidence suggests that firms would rather deleverage than use non-releasable buffers. The CCyB represents an effective tool to ensure firms continue to provide credit to households and businesses during times of stress or when particular risks crystallise. Varying the buffer – both up and down – in line with the evolution of economic conditions, underlying vulnerabilities and the overall risk environment allows jurisdictions to match the resilience of the banking system to the changing scale of the risk it faces. The CCyB is set using a range of indicators as well as forward looking judgement.