International Economic Cooperation

I am greatly honored to be here this evening to present the annual Roy Bridge Memorial Lecture. I am well aware of being the first American public official to deliver this lecture and feel it is particularly apt that you have given that honor to an official of the Federal Reserve Bank of New York. Roy Bridge's American counterpart was Charles Coombs of the New York Fed, the man who taught me a great deal about the workings of the international economy and especially the foreign exchange markets when he served as an adviser to the commercial bank at which I worked. Both Roy Bridge and Charlie Coombs were legendary experts on foreign exchange matters and were closely involved in international financial policy in the 1960s and '70s. They believed that it was international financial cooperation that underpinned the functioning of the Bretton Woods System, which they fought so valiantly to preserve. The friendship between Messrs. Bridge and Coombs reminded many of the extraordinary friendship and cooperation between Montagu Norman and Benjamin Strong, the first head of the New York Fed, and Norman's co-creator of central banking cooperation. That is a legacy that my good friend Eddie George and I try to keep alive today. This evening I would like to share some thoughts on international financial cooperation--a subject that obviously would have met with Roy Bridge's approval. Like Roy Bridge, I fully subscribe to the view that proper functioning of the international financial system requires close and ongoing cooperation among central bankers and market participants. I hope that my remarks will honor, however inadequately, Roy Bridge's remarkable career at the Bank of England and his contributions to the cause of international cooperation. Discussions of international economic cooperation are usually concerned with efforts of major countries to coordinate their foreign exchange market intervention, or their monetary or fiscal policies. But economic cooperation is much broader in scope than just the coordination of macroeconomic policy actions by central banks and national governments. I believe the focus on macroeconomic issues alone leads to a considerable underappreciation of international cooperative efforts. International economic cooperation, in the broader context, involves both the public and private sectors and spans a wide range of activities beyond the macroeconomic and financial arena. These include agreements on trade policy, shipping and navigation, public health standards, and product safety. In fact, international agreements in the nonfinancial area deserve much of the credit for the smooth flow of commerce that we now take for granted. Though I have that broad context in mind, it is not my intention to offer a comprehensive picture of international cooperation. Instead, I will highlight some financial issues that have been at the forefront of central bank cooperation in recent years. Specifically, I would like to focus on three broad areas: banking supervision and related issues concerning financial markets; payment and settlement issues; and financial policies aimed at dealing with international financial crises or major financial sector problems. First, let me be clear that, in my view, international cooperation is not a coded phrase for central bankers and finance ministers telling market participants what to do. The evolution and expansion of financial markets over the last thirty years have moved too far for anyone to believe that central bankers alone have the wisdom or power to absolutely control markets or behavior. Nor do I think that the private sector is always right or that the greed of the most aggressive trader produces the best results for society. Rather, international cooperation is public servants and market participants working together to make markets function as best they can. Indeed, financial markets are a highly cooperative form of competition, and depend upon shared assumptions and expectations of all participants about the rules of the game, and those rules being followed. …