This means macroprudential policy has an increasingly important role. Rightly, the Chinese G20 Presidency has called for G20 members to learn from each other’s experience of macroprudential management. The IMF, FSB and BIS will therefore report to G20 Leaders ahead of the Hangzhou Summit regarding processes to analyse systemic risks; toolkits to address vulnerabilities; and mechanisms for domestic and international coordination. In an increasingly integrated global financial system, this work can help identify areas where we need to work together to keep our systems resilient. It is clear, for example, that strong links exists between asset management in advanced economies and the debt markets relied upon by emerging market corporates. Where appropriate, the FSB will make policy recommendations regarding structural vulnerabilities associated with asset management activities for public consultation before the  14  BIS central bankers’ speeches  Hangzhou Summit. And reinforced by recent experience, the FSB’s second annual report on the effects of reforms will include a comprehensive review of the extent, drivers and likely persistence of any reduction in market liquidity. Whither the G20 Plan for strong, sustainable, balanced growth? Most fundamentally, the G20 needs to use the time purchased by monetary policy to develop a coherent and urgent approach to supply-side policies. Gradualism in structural reforms may be promoting disinflationary expectations, while sapping the political process of its mandate. The weakness of investment not only holds back the supply side but also weighs on the equilibrium interest rate and further burdens monetary policy.
Those who are subject to this pain should have a good understanding of the virtues of this painful adjustment and be prepared to take the bitter medicine for a permanent cure of the ailment. This casts a new responsibility on the banks, because monetary policy is implemented by the central bank through banks. In terms of this new responsibility, the banks should appreciate the intention of the central bank with a positive note. If the central bank raises interest rates and curtails credit levels, the banks should do much more than what the central bank has directed. It has to extend, both by deed and word, its full cooperation and commitment to attaining the monetary policy targets, because at the end, they are the main beneficiaries of having an inflation free world. A similar responsibility is cast on the private sector as well. The Central Bank, like a good physician, has to flush out all the causes of inflation from the system. When doing so, it has to adopt painful and unpopular measures. But such measures are taken for the interest and the long term well-being of the economy. If the economy is allowed to be hit by inflation continuously, it is the private sector which would suffer most. It would be reduced from a long term planner to an at the moment event manager. It would be pestered with numerous requests for wage increases by the employees. Its profits would fall in real terms.