been highlighted. in particular, although the rate reduction may have a positive impact on aggregate demand and employment, and therefore, reduce inequality, it also leads to an increase in the price of assets which are generally held by the wealthiest sectors, thus increasing inequality. focusing on emerging countries, we have discussed the limits that a hierarchy of currencies at a global level imposes on central banks. the most evident sign of this are the functions of money that the dollar has served globally ( unit of account and denomination of debt, means of payment and store of value ). thus, the focus has been the asymmetrical internationalization of emerging countries ’ currencies. that is to say, global ( bank and non - bank ) investors have taken risks in those currencies, but their liabilities continue to be mostly denominated in dollars. this usually causes considerable exchange rate fluctuation regardless of the local macroeconomic conditions, and leads to harder structural limits imposed by a shortage of foreign currency, with negative consequences on long - term growth. smoothing cycles is necessary for macroeconomic stability and development, making a managed floating exchange rate system, along with macroprudential regulations, controls on capital flows and international cooperation mechanisms inevitable. from a rather microeconomic perspective, the role of local financial institutions — especially public development banks — has been underscored, as they may boost structural change through productive financing in sectors with high social return in the long term, and which usually access less - than - optimal financing through traditional commercial banks because of the uncertainty lying behind this type of investments. the challenges inherent to the management of these public institutions have been analyzed, as their goal is other than maximizing profit. however, they may not overlook the impact of their measures on net worth, and must achieve some level of profitability to reinvest their earnings. another topic discussed was the difficulty in laying down appropriate regulatory frameworks for this type of institutions to account for the natural bias in terms of risk — because of long - term loans — and concentration — as they finance largescale investment projects — in their portfolio of assets. at the conference, speakers have also talked about the need to rethink the role of central banks given the challenges posed by the pandemic. we agreed that, as central banks of emerging countries, we face greater difficulties than our counterparts in advanced economies on account of structural problems and less leeway in monetary policy. this compels us to respond to global shocks

jose manuel gonzalez - paramo : central banks and the financial turmoil speech by mr jose manuel gonzalez - paramo, member of the executive board of the european central bank, at the eleventh annual international banking conference “ credit market turmoil in 2007 - 08 : implications for public policy ”, federal reserve bank of chicago, chicago, 25 september 2008. * 1. * * introduction 1 ladies and gentlemen, it is a great pleasure to be here in chicago on the occasion of the federal reserve bank of chicago ’ s eleventh annual international banking conference. since its inception, this conference series has aimed to gather prominent academics, policy - makers and market participants to discuss issues of major importance for our banking industries, financial systems and economies at large, such as asset price bubbles, systemic financial instability, cross - border banking, or financial globalisation. over time, a permanent concern of the organisers has been to focus on the implications for monetary and regulatory policies and, more generally, for public policies of such phenomena. it is fair to say that a great deal of knowledge has accumulated over time thanks to this series of conferences. it is also reasonable to reckon that the foundations of this body of knowledge have been put to the test by the financial market turmoil over the past year. when the tenth annual international banking conference took place in september of last year, the market turmoil had already broken out and central banks were already engaged in interventions aiming to minimise the disruptions to money markets and to preserve the implementation of their desired monetary policy stance. while market data on future interest rates suggested that we were in for a rather protracted period of tensions in money and credit markets, it was not obvious at the time that the financial turmoil would turn out to be one of the most challenging events of the last century for our financial systems. indeed, the international financial landscape looks today very different compared to one year ago and almost every day new events contribute to re - shape it further. in particular, over the past two weeks adverse events occurred almost on a daily basis and led to increased uncertainty and significant financial market volatility. a large bank failed, while several financial institutions had to be partly or entirely taken over by others. in response to the renewed tensions, public authorities announced a number of measures and initiatives to address problems at both stressed markets and troubled individual institutions. in particular, central banks stepped up their efforts to inject liquidity in global money markets in order to guarantee their smooth functioning. as i mentioned earlier, one of the