The Eurosystem is actively participating in these ongoing discussions. Our focus in these discussions is clearly on crisis prevention. If, however, another financial crisis was to occur in the future, it should be handled in a way that will not create incentives for both creditor countries and investors which are incompatible with the future stability of the international financial system. Again, the best contribution the Eurosystem can provide to international stability is to maintain price stability in the euro area. International policy cooperation which goes beyond the exchange of information and views on issues of mutual interest could easily become counterproductive, compromising both the Eurosystem’s mandate and international financial stability itself. With the creation of the euro, there has been a renewed interest in the concept of target zones for exchange rates among the main currency areas, namely the Unites States, the euro area and Japan. But, in a world characterised by highly integrated and sophisticated international financial markets, there is serious doubt as to whether target zones for exchange rates are feasible or even desirable. Such exchange rate targets would imply that domestic policy objectives would have to be subordinated to external requirements. This would – in certain circumstances – conflict with the primary objective of price stability and result in a greater volatility of business cycles, as the burden of adjustment would be transferred to domestic policies and developments.

And if and when there were a serious co-ordination challenge – if, for example, one body became concerned about its ability to meet its primary objective, without enlisting the assistance of the other – then I think the current system in the UK would allow that to happen. Equally, there are also clear advantages in a degree of separation. One – something I haven’t gone into today but which still matters a great deal – concerns specialised skills. The two committees at the Bank profit greatly from having external members steeped in particular experience, whether that’s monetary experts on the MPC or financial experts on the FPC. Another, the topic of this talk, is a matter of accountability and focus. I think there would be risks in asking the central bank to meet a wide range of objectives with no distinctive accounting for the use of its various tools. Thank you. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  References Aikman, D., Giese, J., Kapadia, S., & McLeay, M. (forthcoming), “Targeting Financial Stability: Macroprudential or Monetary Policy?”. Baskaya, Y., di Giovanni, J., Kalemli-Özca, S. Peydro, J., Ulu, M. F. (2017), “Capital flows and the international credit channel”, Journal of International Economics, Vol. 108, Supplement 1. Bianchi, F. and Melosi L. (2018), “Constrained Discretion and Central Bank Transparency”, Review of Economics and Statistics, Vol. 100, No. 1, pp. 187-202. Bean, C. (2010), “Monetary policy after the fall”, Speech given at Federal Reserve Bank of Kansas City Annual Conference Jackson Hole, available at https://www.bankofengland.co.uk/speech/2010/monetarypolicy-after-the-fall-speech-by-charles-bean.