Jean-Pierre Landau: An international financial architecture for the 21st century – some thoughts Remarks by Mr Jean-Pierre Landau, Second Deputy Governor of the Bank of France, at the 17th Central Banking Seminar of the Bank of Korea, Seoul, 1 June 2010. 17th Central Banking Seminar of the Bank of Korea; Seoul, 2 October 2009 (this text is a revised version: 1 June 2010). *  *  *  International financial and monetary arrangements are currently extensively debated. For many countries, both advanced and emerging, the crisis has shown that there is a close link between internal and international financial stability. In addition, rebalancing of the world economy stands at the forefront of the G20 policy agenda and there is a perception it may be difficult to achieve under current arrangements. In this paper, I would like to discuss the foundations for a future international financial and monetary system. One central point I will make is that “financial” and “monetary” aspects cannot be dissociated from one another. To a large extent, international monetary arrangements, as well as current account imbalances, are the by-products of policy choices made by countries on their capital account regimes and financial development. Therefore, one must try and take a long term view, encompassing all aspects of the financial interrelationships between nations. I will only deal tangentially with exchange rate regimes and their implications for monetary policies. Those have been abundantly analysed and discussed in the literature and the policy debate (Blanchard et al., 2005).
It should be noted that regional pooling is efficient only when countries are facing asymmetric liquidity shocks within the region. Pooling brings no additional benefits when shocks occur on a global scale and all countries are hit simultaneously. Also, regional arrangements cannot avoid the moral hazard problem that all multilateral schemes are facing. Nevertheless, there seems to be considerable scope for regional arrangements to prosper in the future. First, they can act as useful complements to more global schemes and be articulated with (and supported by) IMF facilities. Second, one can expect regional financial integration to progress, especially in those parts of the world where huge pools of savings are available and currently intermediated through financial systems located outside the region. With deeper financial integration, the probability of significant portfolio shifts inside one region increases markedly, creating the potential for asymmetric liquidity shocks. The development of regional liquidity arrangements may appear very useful to underpin the development of regional financial markets. Stores of value One consequence of the crisis has been to cast doubts on the ability of some assets, up to now considered as riskless, to serve as reliable stores of value. The ability of the private sector to create “safe” assets through financial innovation has proved largely illusory (Caballero, 2009). So, in the period to come there may be both an increased demand worldwide for risk free assets and much less certainty on their future supply.