8  BIS central bankers’ speeches  A weaker currency is a normal consequence of more expansionary policy in an open economy. Each of the countries affected has the option of adjusting its own monetary policy in response. All countries cannot depreciate their currency against each other, but all countries can conduct more expansionary policy if they prefer, with conventional (lower policy rates) or unconventional methods (such as asset purchases). More expansionary monetary policy will increase real activity, world trade, and both exports and imports, which in a situation of underutilised resources is to the benefit of all. Monetary policy is not a zerosum game. References Adrian, Tobias and Hyun S. Shin. 2011. “Financial Intermediaries and Monetary Economics.” In Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics,Volume 3a, chapter 12, pp. 601–650. Elsevier. Assenmascher-Wesche, Katrin, and Stefan Gerlach. 2010. “Credit and Bubbles.” Economic Policy 25(63), pp. 437–482. Bean, Charles R. (2009), “The Great Moderation, the Great Panic and the Great Contraction.” Schumpeter Lecture, Barcelona, 25 August. www.bankofengland.co.uk. Bean, Charles, Matthias Paustian, Adrian Penalver, and Tim Taylor. 2010. “Monetary Policy after the Fall.” In Macroeconomic Challenges: The Decade Ahead. Federal Reserve Bank of Kansas City. www.kansascityfed.org. Bernanke, Ben S. 2010. “Monetary Policy and the Housing Bubble.” Speech on January 3. www.federalreserve.gov. Bernanke, Ben S. 2011a. “The Effects of the Great Recession on Central Bank Doctrine and Practice.” Speech on October 18. www.federalreserve.gov. Bernanke, Ben S. 2011b. “Statement.” Statement before the Committee on Financial Services, U.S. House of Representatives, July 13. www.federalreserve.gov. Blinder, Alan. 1998.

However, it may make sense to assign the objective of financial stability to the central bank, if the central bank is given control of the appropriate supervisory, regulatory and crisis management instruments. Whether giving the central bank such a broad remit would also be the best solution is too complex an issue to address in this context. The fact that financial-stability policy and monetary policy are distinct and different does not mean that there is no interaction between each policy and the other policy’s objectives. Monetary policy affects the real economy and thereby profitability, asset prices and balance sheets. Thereby it affects financial stability. Financial-stability policy directly affects spreads, lending and other aspects of financial conditions as well as the transmission mechanism of monetary policy. This means that monetary policy should normally be conducted taking the conduct of financial-stability policy into account, and financial-stability policy should be conducted taking the conduct of monetary policy into account. This is similar to how monetary policy is conducted taking the conduct of fiscal policy into account, and vice versa. Note that this way of conducting monetary policy and financial-stability policy – in line with a non-cooperative Nash equilibrium rather than a coordinated equilibrium – does not depend on how the authority for financial-stability policy is shared between different institutions. It should be conducted this way regardless of whether the central bank has the sole authority or whether it is shared between several institutions. Thus, under normal conditions, financial stability is handled by financial-stability policy, not by monetary policy.