This has taken place since the demise of the Bretton Woods system at the bilateral level in the context of the IMF’s Article IV consultations and it has expanded recently at the multilateral level with the IMF’s Spillover and External Sector Reports as well as the G20 Mutual Assessment Process, not to mention regional exercises. The resulting recommendations are however not binding and therefore constitute only a light form of multilateralism. Clearly, countries may be reluctant to submit to closer scrutiny, fearing that the recommended policies may not be in their national interest. Thus, better awareness and maintaining a spirit of multilateralism will be a crucial element in strengthening the effectiveness of surveillance and contributing to global stability. This requires institutions that are both legitimate and effective. In particular, lack of progress in global governance reform (reflecting the shift towards a multipolar world) would fuel a lack of trust in the IMS. It would encourage the ring-fencing of national systems and the re-nationalisation of savings, harming growth and jobs in all economies. BIS central bankers’ speeches  5  Conclusion Let me conclude. The belief that the comfortable pre-crisis world could return is long gone. And I also believe that we should not aspire to turn the clock back. The global economy has changed fundamentally, and there is clearly a greater understanding of the role of crossborder linkages. The current IMS leaves countries with more domestic policy options to counter adverse idiosyncratic shocks than the inflexible system of the Bretton Woods era.

The debate on international monetary policy coordination There are different proposals on how the IMS should change. In particular, there have been several calls to establish a more formal framework of monetary policy coordination, or some kind of revised Bretton Woods system. Overall, I will argue that the forces which are at play today in the IMS, as described above, call for a strengthening of some of its features rather than an overhaul. Theory First, while the literature suggests that international monetary policy coordination may be instrumental in achieving a globally optimal solution, it generally concludes that the gains from coordination are small relative to an environment in which national policy-makers pursue optimal domestic policies.7 Second, it is not clear that the benefits from coordination increase monotonically with economic and financial integration.8 On the one hand, financial integration intensifies the impact of foreign shocks on the domestic economy. On the other hand, it also improves diversification and insurance opportunities, hence mitigating the impact of foreign shocks. It is difficult to know ex ante which of these effects will dominate both in “normal” and “crisis” times. My suggestion would be that while the diversification effect dominates in “normal” times, in “crisis” times the effects from large adverse spillovers prevail. I will come back to this issue later. Practical obstacles There are also several practical challenges that make more explicit and binding forms of monetary policy coordination difficult. The first stems from political economy. Central banks operate under different mandates, time horizons, objectives and accountability arrangements.