Philipp Hildebrand: The international monetary system
Opening remarks by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss
National Bank, at the High-Level Conference on the International Monetary System, Zurich,
10 May 2011.
* * *
Good morning, Ladies and Gentlemen. I am pleased to welcome you to the second joint
SNB-IMF conference on the international monetary system. It is a privilege for the Swiss
National Bank to cooperate with the IMF and contribute to this important debate by yet again
bringing together such a distinguished group of policy makers and experts. The IMF
Managing Director, Dominique Strauss-Kahn, is once more honouring this event with his
participation.
The reform of the international monetary system is subject to an ongoing debate. The global
financial crisis put a sudden end to a near decade of seemingly healthy growth widely
distributed across the globe. The crisis rocked the system to its core. It has brought forth
concerns about the stability of an increasingly complex and interconnected global economy.
It has also refocused attention on the potentially destabilising effects of unprecedentedly
large and, at times, extremely volatile cross-border financial flows.
Globalisation has led to dramatic changes. Emerging economies have been steadily moving
to the fore of the international scene. It is imperative that the international monetary system
adapts itself to these rapid changes. A thorough reassessment and reform of the system
have become a priority among policy makers. Switzerland, as an open economy with an
important currency and a leading financial centre, has a vital national interest in participating
actively in the reform debate. The IMF occupies a central role in the international monetary
system. Therefore, it is natural that the Fund has also come under scrutiny, and its many
activities are being reviewed.
Judged by the recent proliferation of conferences about the international monetary system,
one might conclude that the system is in need of a major overhaul. This is not necessarily the
case. I share the Managing Director's view, expressed recently in Nanjing, that the current
system, despite many imperfections, also has good features. What is required are
improvements, not revolutionary changes. In other words, the current system can be
strengthened while preserving its core features. If progress is slow, it is because even small
changes typically require difficult political decisions. Continuous dialogue and cooperation
are therefore essential. Only through a regular and open exchange of views can we hope to
forge a common understanding of the strengths and weaknesses of the current system and
address any remaining shortcomings - step by step.
Since our last conference, the international community has made progress on the reform
agenda. The Fund has greatly increased its capacity to provide financial support to members
and adapted its lending tools. It has modernised its surveillance activity, for example by
introducing new tools to track spillovers. Furthermore, it has reopened the discussion on the
management of capital flows, although admittedly this has been controversial. Under the
French presidency, the G20 has been at least as active as the Fund. Of particular relevance
is the steady implementation of the Mutual Assessment Process, a new instrument for
multilateral cooperation and oversight aimed at promoting economic adjustments worldwide.
We will have the privilege of hearing from Minister Lagarde about this important endeavour
later during lunch.
In today's conference, we would like to advance from diagnosis to treatment. Last year, the
main focus was on the sources of instability and the inadequate asymmetric adjustment
mechanisms of the current system. This year, the aim is to progress towards a common
understanding of the role of the Fund and to discuss concrete reform proposals. In doing this,
it is important that we stay focused and realistic.
The two main tasks of the IMF are crisis prevention and crisis resolution. The main Fund
policies for achieving these tasks are surveillance and financial support. Before leaving the
floor to our panellists, allow me to reflect very briefly on these two topics.
The IMF is mandated to oversee the international monetary system and monitor the
economic and financial policies of its member countries. In this way, it helps to ensure the
effective operation of the international monetary system, thereby promoting and sustaining
sound economic growth. In recent years, much has been done to make surveillance more
focused and effective. Attempts to better integrate financial sector issues and spillover
effects are all steps in the right direction. However, for surveillance to be relevant and gain
traction, it is equally important that the IMF is sufficiently independent in its conduct of
surveillance. To deliver credible messages, the Fund's technical expertise has to be beyond
any suspicion of political manipulation. Surveillance, in other words, has to be an exercise in
objectivity. Only then can it also be an exercise in collaboration and contribute to a sounder
and more resilient international monetary system. This being said, IMF surveillance and
collaboration does not release national policy makers from their responsibilities. Keeping
one's own house in order is a prerequisite for an orderly global village. This is particularly
true, though not exclusively, in the domain of fiscal policy. Fiscal responsibility is the
paramount challenge of our age.
Let me now turn to the second main Fund activity, financial support. The scope and nature of
this activity has changed considerably over the past few years. Fund resources have been
strongly supplemented, and the Fund's lending toolkit has been made more flexible. But
multilateral financing has not been the only instrument used in tackling the crisis. Regional
facilities and central bank swap lines have also played a very important role. All these
instruments have acted as complements, and not as substitutes, and together they have
prevented a breakdown of the system. Looking into the future, the important question is
whether it is necessary to proceed beyond the existing loose network of multilateral, regional
and bilateral facilities towards a truly global financial safety net. This would imply formal,
systematic coordination between the different facilities to allow synchronised provisioning of
liquidity during crises. Apart from the fact that any significant transfer of power from national
to supranational authorities is extremely difficult to achieve, I am not yet convinced that a
global financial safety net of this kind is necessary or even desirable. First, concerns about
moral hazard must be taken seriously. Second, we have to be careful not to undermine
established mechanisms at the national level. Finally, let us not forget that it is only the
central banks that can create liquidity as needed. And their cooperation has proven to be
very effective during the recent crisis.
Let me now shortly outline the topic of the five panels of today's conference.
The first panel will discuss policy discipline and spillovers in an interconnected global
economy. It will assess proposals for improving the surveillance of the system and global
policy cooperation.
The second panel will deal with global liquidity provision in systemic crises. It will evaluate
the adequacy of currently available facilities and proposals on expanding them.
The third panel focuses on capital flow management. It will follow up on the recently initiated
discussion about a new, more uniform and balanced approach.
The fourth panel will discuss the desirability and feasibility of a multi-polar currency and
reserve system, and the fifth panel will wrap up and outline realistic objectives for 2011 and
beyond.
I am looking forward to a lively discussion and open exchange of views. Let me remind
everyone that this conference is being conducted strictly in accordance with the Chatham
House Rule. With these words, I open the conference and leave the floor to the panellists.