In particular, should central banks continue to use their single monetary policy instrument – in our case Bank Rate, supplemented when necessary by unconventional operations – to aim solely at price stability, or should they aim also at wider financial stability objectives, as some have suggested? For over fifteen years Bank Rate has been set to meet an inflation target. And it was very successful in achieving that objective until commodity prices pushed up inflation in 2007. Since the Monetary Policy Committee was established, the average inflation rate has been only 0.1 percentage points away from the target. The strategy of inflation targeting ensured that the MPC maintained a balance between overall demand and supply in the economy. We could, of course, have pursued a different policy. We could have set interest rates consistently at a higher level in order to lower the growth of domestic demand below the rate at which inflation was stable and close to the target. In the words of my predecessor, we could have rejected the approach of accepting “unbalanced growth rather than no growth”. But to argue that Bank Rate should have been set to achieve not price stability but other objectives would have meant accepting rising unemployment and falling inflation. And that would not have altered long-term interest rates in world capital markets and “irrational exuberance” in financial markets in the US and elsewhere.
Despite these successes, there remains a lot to be done before everyone benefits from increased wealth. Although developments are moving in the right direction, the total number of poor people is still a problem. If the fruits of globalisation do not continue to spread to more countries with a poor population and within countries, there is also a risk of more states collapsing or other political problems that could slow down growth in the poor countries, and also have negative consequences for the rest of the world. The growing discrepancy between different regions is therefore worrying. This was clearly illustrated during the 1990s, when growth in Asia averaged 7 per cent, while the figures for Latin America and Africa south of the Sahara were 3.4 per cent and 2.3 per cent respectively. There is a huge contrast between, for instance, China, which has succeeded in lifting around 400 million people out of extreme poverty over the past twenty years, and Africa south of the Sahara, where the number of poor people increased by 150 million during the same period. In addition to weak states and internal conflicts, the African continent is hard hit by HIV/AIDS, which in some countries has reduced the average length of life from 55 years in 1990 to below 40 years in 2002, and left many children and young people to their own devices, without any adult authority. One of the most important challenges in future is thus to try to integrate Africa into the global economy to a greater extent.