Instead, I want to pose this question: Supposing that all countries had free capital movements, freely floating exchange rates, and first-rate macroeconomic policies aimed at internal balance, would everything then be fine, at both the national and global level? I think there are strong indications that it would not be. There are a few reasons for this. First of them is the tendency of exchange rates to move away from equilibrium values for extended periods, with sharp corrections at the end of the process and with excess volatility throughout. The research on this phenomenon is still ongoing, but there are strong indications a number of factors suggest that the process is related at least partly to how asset markets function and how expectations are formed, and would not disappear even if macroeconomic policies were perfect. There will be net capital flows associated with this process, as well as swings in current accounts and effects on domestic financial systems that can ultimately lead to serious financial instability. In a small, open, and increasingly financially integrated economy, the process runs as follows: Domestic interest rates at the longer end of the maturity spectrum tend to become more closely correlated with the global rate, or the rate of the largest trading partner, and less correlated with the domestic policy rate. This means that monetary transmission tends to go increasingly through the exchange rate channel, which is only a problem, however, if the exchange rate behaves badly. Unfortunately, there is copious evidence to suggest that it is a problem.
Ravi Menon: Two problems for FinTech to solve - cross-border payments and ESG data Keynote speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Annual SWIFT International Banking Operations Seminar (SIBOS) 2022, Amsterdam, 10 October 2022. *** Distinguished guests, ladies and gentlemen, good afternoon. I am grateful to SWIFT for the opportunity to speak to this distinguished gathering of finance and business leaders from across the world. Most of us here have an affiliation to finance or to technology, or more likely to both. Indeed, the extensive application of technology to enhance the design and delivery of financial services has become a defining feature of the last decade – the FinTech phenomenon. FinTech is increasingly pervasive across not just traditional financial institutions but also non-financial players ranging from small start-ups to large technology firms providing financial services. If its benefits are properly harnessed and its risks well managed, FinTech can be a powerful force for good – solving problems and creating opportunity. In keeping with the theme of this conference, I want to focus today on two challenges in financial services where FinTech can potentially play a positive transformative role:  one, cross-border payment and settlement; and two, high quality, trusted ESG data. These two challenges are what I would call foundational issues that need to be addressed before broader progress can be made. Payments is the life blood of the modern economy.