mark carney : restoring faith in the international monetary system remarks by mr mark carney, governor of the bank of canada, at the spruce meadows changing fortunes round table, calgary, alberta, 10 september 2010. * * * introduction we are three years into the global financial crisis, and its dynamics still dominate the economic outlook. in particular, broad forces of bank, household, and sovereign deleveraging can be expected to add to the variability and temper the pace of global economic growth in the years ahead. this would be true even if policy were optimal ; but globally, this is not the case. one of the reasons is the functioning of the current international monetary system. it promoted the enormous build - up of debt that preceded the crisis and could complicate the necessary process of balance - sheet repair in its wake. it is fostering deflationary risks in major advanced economies and asset - price inflation in emerging markets. for countries like canada, the outlook and policy environment remain unusually challenging. it is in this context that the international monetary system is being re - examined. the question is whether to change the system or to change policies to be consistent with the current system. i will argue today that there is no miracle cure. faith is required, but not in a barbarous relic or a utopian global central bank. rather, countries must restore their faith in the adjustment process under the current system. both the g - 20 framework and its financial reforms are necessary to restore that trust. the international monetary system and the crisis the international monetary system consists of ( i ) exchange rate arrangements ; ( ii ) capital flows ; and ( iii ) a collection of institutions, rules, and conventions that governs its operation. these core elements are supplemented in two important ways. domestic monetary policy frameworks are essential components of the global system. the international monetary system is also closely related to the international financial system, which comprises financial markets and the institutions, rules, and regulations that govern them. the international monetary system is an increasingly unstable hybrid of fixed and floating regimes. following the breakdown of bretton woods, there was a general move to a more market - based system with an increasing number of countries adopting floating exchange rates and steadily liberalizing their capital accounts. capital flows exploded, rising three times faster than the rate of growth of trade over the past three decades. in contrast, in the aftermath of the asian crisis, a range of emerging markets became increasingly active managers of their exchange rates. as a by -

they pleaded. and yet i still persist, i am still here because i have faith. and all the battles, hidden and public, all the battles with others and myself, are now a triumph of faith in myself and in people who were not consumed by selfishness, faith in people driven by the common good! in the past 12 years serbia has transformed from a country of monetary and fiscal instability and uncertainty into a country whose inflation is comparable to those of advanced countries, and which has a stable currency, a record high level of fx reserves and a stable financial system. 2 / 8 bis - central bankers'speeches exchange rate stability has become a new reality in serbia. we have changed the approach to implementing the exchange rate policy of the dinar against the euro. instead of allowing significant oscillations which boost inflationary pressures and result in business uncertainty, high exchange rate differences in the local economy and a rise in npls, which were the characteristics of the local market before august 2012, one of the main features of the nbs and the overall financial system since then and all the way until today is – the relative stability of the exchange rate. at that time, by pursuing an appropriate monetary policy we reduced inflation by 10 pp in a year – from 12. 2 % at end - 2012 to 2. 2 % at end - 2013. inflation was kept continuously low from end - 2013 until end - 2021 ( around eight years ), when global inflationary pressures escalated. thanks to the achieved and preserved price stability, we had several years of low interest rates on dinar loans ( the key policy rate was lowered from the inherited 11. 75 % in 2012 to 1 % at end - 2020 ), resulting in lower costs of borrowing for households and corporates. since december 2012, the nbs has conducted its main open market operations – reverse repo operations ( repo sale of treasury bills ) through which it mops up excess dinar liquidity on a weekly basis – according to the system of multiple variable rates. this system has allowed the nbs greater flexibility and efficiency in monetary policy implementation over 12 years. as a result of multiple global crises, inflation has been imported into serbia over the past few years in the wake of the pandemic and several global conflicts, and its different nature called for a different response of the government and the nbs – a continuous, but gradual response. in cooperation with other government institutions, the nbs did everything in its power to protect households '