François Villeroy de Galhau: What responses to terms of trade shocks in poor and vulnerable countries? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Bank of France-FERDI (Fondation pour les Etudes et Recherches sur le Développement International) conference, Paris, 24 January 2017. * * * Good morning and welcome to all in the auditorium of the Banque de France. It is a great pleasure to welcome you here with Patrick Guillaumont, President of FERDI and coorganiser of this conference, to whom I extend my warmest greetings. I would also like to welcome Jan Gunning, Professor Emeritus at the Free University of Amsterdam, as well as all the speakers who honour us with their presence. The Banque de France has established research partnerships with several foundations and universities: the Paris School of Economics, the Toulouse School of Economics and the Fondation nationale des Sciences politiques. The partnership with FERDI (Fondation pour les études et recherches sur le développement international), which we are pleased about, focuses on extending and enriching discussions and research on monetary and financial issues related to development, including: the financing of development, in particular the mobilisation of domestic and international savings, the competitiveness of African countries and exchange regimes and strategies, regional integration in Africa, which was the theme of our first conference in 2014, the “curse” of commodities in low-income countries, and the management of the Dutch syndrome and the terms of trade cycles, i.e.

Deregulation since then has meant that there are currently greater similarities with the late 19th century/early 20th century than with the intervening period of regulation. I have used the word deregulation here. On a general level this is an appropriate description, but one can also describe developments in terms of changes in regulation. This is because, at the same time as considerable deregulation has occurred, there are other regulations remaining and new ones have been introduced. One important difference, however, is that today’s regulations are aimed at allowing the price mechanism to function, i.e. they are market-conforming. These regulations are usually aimed at protecting savers and investors against risks and abuse. In this sense it is a case of re-regulation. The financial sector thus fulfils a central role as a lubricant for the economy. An efficient financial sector increases a country’s potential growth rate. Today approximately 80,000 people are employed in the financial sector, although the number of bank employees in Sweden is in relative terms lower than in any other OECD country. This and other indicators show that we have a relatively efficient financial sector. BIS Review 37/2003  3  Growth based on productivity and labour I have emphasised, in this roughly sketched outline, the important role of growth in the development of our standard of living. However it also plays a central role in monetary policy discussions, as demand in the economy in relation to production capacity is decisive for whether inflationary bottlenecks will arise or whether we will underutilise the production potential.