emsley tromp : central bank cooperation – the experiences of emerging and developing economies address by dr emsley tromp, president of the central bank of curacao and sint maarten, at cemla ’ s 60th anniversary commemorative conference “ central bank cooperation at the beginning of the 21st century ”, mexico city, 19 july 2012. * * * good afternoon ladies and gentlemen, first, allow me to congratulate cemla on its 60th anniversary. for the past 60 years, cemla has consistently promoted better knowledge of financial and monetary topics in latin america and the caribbean through cooperation among the region ’ s central banks. this cooperation has evolved according to the prevailing economic conditions, developments in economic thinking, and political views. against this background, i would like to discuss the experiences of emerging and developing economies in the area of central bank cooperation. central banks have a long tradition of cooperation. over time, the objective of cooperation has shifted from monetary stability towards the more comprehensive issue of financial stability, and, the intensity and forms of cooperation have changed. during the 1920s, central bank cooperation was aimed primarily at sustaining the gold standard. in the 1960s, central banks cooperated mainly to maintain the bretton woods system of fixed but adjustable exchange rates. because of the disappointing experiences with foreign exchange rate interventions in the 1970s, central banks became more inclined to preserve monetary stability through domestic monetary policy actions than through international policy coordination. as financial markets became more integrated because of technological developments and financial innovations, in the 1980s and 1990s central banks cooperated largely on development and introduction of international standards for prudential regulation and coordinated financial sector supervision. during the international financial crisis that started in 2007, central banks coordinated their efforts to fight systemic liquidity risks and, through monetary policy coordination, attempted to reduce the risk of deflation and prevent a deep global recession. cooperation among central banks is important both at a global and regional basis. cooperation is encouraged at a global level and carried out at a regional level to account for regional differences. in the case of emerging and developing economies, cooperation among central banks follows by and large policies agreed upon by multilateral institutions. the bank of international settlements is of course the best example of a global organization for discussion, consultation, and cooperation among central banks. meanwhile, cemla promotes cooperation between central banks on a regional level. in fact, as mentioned by javier guzman this morning, cemla has played a key role in the promotion of regional coordination through a

over the years, the organization has organized several seminars on statistical methodologies and theoretical approaches. in addition, the cemla regularly publishes and distributes empirical studies by central bank researchers in the region and organizes seminars and conferences to discuss the empirical findings. a second area of cooperation between central banks is the provision of emergency assistance in exceptional circumstances. over time, central banks have supported each other in situations such as liquidity crises in order to mitigate systemic liquidity risk. this emergency assistance has included, among other things, coordinated foreign exchange operations. in the past, several central banks in the emerging and developing economies received emergency liquidity assistance. for example, during the debt crisis of 1982, the us federal reserve offered the bank of mexico a $ 700 million swap agreement. during the currency crisis of 1994, the bank of canada offered mexico a shortterm swap of us $ 1 billion. furthermore, brazil received financial support from the bank of international settlements in 1998 in the context of an imf stabilization program. during the recent international financial crisis, a new form of cooperation emerged in the provision of emergency assistance. major central banks, including the us federal reserve and the european central bank, opened up inter - central bank swap facilities and repurchase agreements to provide central banks with emergency liquidity. in my view, the third and most ambitious form of cooperation between central banks is coordination of monetary and exchange rate policy. the rationale for policy coordination in these two areas stems from the potential externalities that domestic policy in one country can have on other countries i. e., the “ beggar thy neighbor ” policies. for example, monetary tightening in one country to reduce inflation will lead to exchange rate appreciation and hence may cause inflationary pressures in a trading partner of that country. as a result of increased globalization, these spillover effects have become more apparent. however, after the fall of the bretton woods system in 1971, the appetite for coordinated monetary policy and exchange rate intervention declined. central bankers had a common belief that the best way to achieve monetary stability was through domestic policies. as a bis central bankers ’ speeches result, central banks became less inclined to trade off their policy autonomy for global or regional policy coordination in the areas of monetary and exchange rate policy. however, the recent international financial crisis has resulted in an intensification of monetary policy coordination. in october 2008, the us federal reserve together with the bank of canada, the bank of england, the european central bank, the central bank