The scenario of slower economic growth in the short term, together with recent price trends (likewise worse than expected), increase the risk of a de-anchoring of inflation expectations. 3  Against this backdrop, at our October meeting, the ECB Governing Council underscored its readiness to adjust all monetary policy instruments to contend with the pandemic’s impact on price stability. In my opinion, the recalibration of monetary policy instruments in response to the second wave of the pandemic should, at least, include further recourse to our pandemic emergency purchase programme (PEPP) and our targeted longer-term refinancing operations (TLTROs). The PEPP was launched in March to counter the adverse consequences of the first wave of the pandemic. Its flexibility is what sets it apart from the asset purchase programme (APP) in place before the COVID-19 outbreak. Thus, whereas the APP is relatively rigid in terms of how the asset purchases are distributed both over time and across jurisdictions, the PEPP has allowed us to concentrate purchases on those countries whose financing conditions, at any given time, have been subject to a greater degree of tightening. Thanks to this flexibility, together with its large initial envelope, the announcement of the creation of the PEPP on 18 March served to substantially reduce interest rates on sovereign debt, especially that of the countries hardest hit by the health crisis at that moment, such as Italy and Spain.

Charles Kindleberger used to say, “the international financial system doesn’t work unless somebody takes the responsibility for it” (as quoted by Fisher, 2008).   Second, those participants are more diverse from the point of view of their economic structure, their demography, their level of development, and, more importantly, their social choices and preferences. For instance, different saving rates may be seen as resulting from divergent time preferences. Likewise, asymmetries in financial development may, to some extent, reflect different choices and tradeoffs between efficiency and stability in the organisation of capital markets and the architecture of financial systems.   Finally, linkages between economies, whether through trade, capital or more intangible “confidence” channels are continuously getting stronger as witnessed by  1  See, for instance, the proposals aiming at separating the “surveillance” and “financing” functions and making the former more independent from the Executive Board. 2  BIS Review 76/2010  the speed and amplitude of contagion of economic and financial shocks during the last eighteen months, which took everybody by surprise. Pending some economic catastrophe, these characteristics will persist over time. A large number of different countries, with different preferences, will permanently be linked and interdependent through active, but imperfect capital markets. Any future international architecture must be compatible with those basic features of today’s world which, prima facie, create the potential for more complexity and, maybe, instability. International capital markets and the allocation of savings Let’s suppose, for an instant, that there is a unified, fully integrated, and complete world capital market.