As regulators, we obviously have a part to play in helping the finance industry adapt. We should strive to reduce uncertainties as much as possible. One source of uncertainty today is the regulatory framework. Nearly ten years after the crisis, our priority must be to stabilise the rules. The main elements of the Basel III package have already been approved in 2010–11 and have largely entered into force. But there are still ongoing discussions regarding the measurement of risk on bank balance sheets. The objective, as you know, is to reduce the unwarranted variability of results between banks and across jurisdictions. And as the German G20 reiterated last week, the completion of reforms must not result in a “significant increase in overall capital requirements”. We have not yet reached an agreement. Thanks to our mobilisation and that of our European partners, we have avoided a bad agreement. For the coming months then, our objective is to reach a good one. Another source of uncertainty is Brexit. With article 50 about to be triggered, we obviously cannot prejudge the outcome of the future negotiations. But it is essential to bear one principle in mind: in the single market, you cannot separate access and rules. In financial services in particular, you can hardly expect to have a European passport if you don’t accept the single market’s rules. Let us be clear: we are saddened by Brexit, and we are not the ones who have decided to have a so-called “clean Brexit".
The drift towards bilateral- and trade-focused international economic policies which bypass existing channels of trade conflict resolution severely undermines global governance of international trade. On their own, EMs have little bargaining power, and engaging in bilateral relationships with large countries could result in trade distortions and uncertainties that lead to inefficient allocation of resources. In addition to the direct impact on trade, this bilateral- and trade-focused thinking could lead to another serious implication, especially from the perspective of macroeconomists who are well-represented in this room: the distortion of macroeconomic policy framework. The global imbalance analysis illustrates this issue nicely. The existing framework that was developed by the IFIs prior to the GFC and was adopted internationally has been pivotal in the way we made policies to address global imbalances in the past. I have talked earlier about how the current framework based on current account balance alone needs to progress with the changing environment, the excess liquidity in the global financial system, and take a broader view that includes capital flows. I am afraid that the current geopolitical environment will not allow us to progress forward in our thinking. Even the existing current-account based framework of global imbalances is being challenged by the bilateral worldview that focuses on bilateral trade. A currency intervention assessment framework that focuses narrowly on current account and bilateral trade balances and disregards other types of fund flows like portfolio flows is an example of thinking that distracts us from macroeconomic reasoning.