francois villeroy de galhau : beyond brexit, our common challenges and our common answers speech by mr francois villeroy de galhau, governor of the bank of france, at the city week 2018, london, 24 april 2018. * * * ladies and gentlemen, it is a pleasure to be in london again and allow me to thank you for inviting me to speak at city week 2018. as is to be expected, brexit is omnipresent on the agenda. but, as the belgian friar dominique pire said when he received the nobel peace prize in 1958, “ men build too many walls and not enough bridges ”. that is why i am not going to speak about what divides us, but rather about what unites us. we are and will always remain close friends and partners, even if we will no longer be in the same european club. today i will elaborate on two challenges that should unite us in the near future : the utmost need for active multilateralism and the finance of tomorrow in an interconnected world. 1. the need for active multilateralism international cooperation between countries is more important than ever to preserve the current improvement in the global economic environment : according to the latest imf forecast, global growth should stand at 3. 9 % in 2018, after 3. 8 % in 2017. and we should together resist two temptations : financial complacency, and protectionist escalation. on the financial sector, beyond the european union ’ s borders, and with all our partners, we have to strive to maintain the collective rules of the game that we have put in place since the g20 summit of london in 2009. nine years later, some actors may be tempted to have short memories and forget the lessons of the crisis. but diluting financial regulation would pave the way for the next financial crisis. so we must now be firmly committed to the “ full, timely and consistent implementation ” of basel iii, as successfully agreed last december and stated in the last g20 ’ s buenos aires communique. neither the united states today, nor the united kingdom tomorrow, should take the path of unilateral deregulation, and we welcome their commitment. evaluation and simplifications are obviously possible, under the common fsb umbrella : but regulatory competition would be nothing less than a lose - lose scenario with disastrous consequences. however, we are not done with financial regulation yet. we still have to finalise ongoing

unpredictability, a point to which i shall come back later. this has led to the demise of monetary aggregates as targets of monetary policy, and, in some countries, they have been abandoned as indicators as well. but we still think, in the euro area, that friedman is right in the very long run. our research has established that low frequency movements in money growth and inflation are closely correlated, retaining fluctuations with a period of 8 to 10 years. this is because, in our view, money can directly influence output and inflation in particular due to monetary and financial frictions existing in the economy and also some stickiness in the price determination process. those facts underpin the two pillar approach of the eurosystem as you know, the eurosystem ’ s monetary policy strategy is grounded on two pillars : economic analysis, on the one hand, and monetary analysis, on the other. a wide set of short - term indicators ( economic analysis ) are complemented by the longer - term determinants of inflation ( monetary analysis ). this setup is based on a premise and has one important implication. the premise is that even if money has no systematic and immediate influence on prices, it can provide valuable and specific information on future inflation, at time horizons stretching beyond those usually adopted for the construction of central bank inflation projections. because of the long - term relation between money growth and inflation, money has leading - indicator properties on future price developments. one could make the case that this is only an " empirical argument ". but, in central banking, empirical realities do matter much. one could also argue that other strategies - such as targeting the price level or an average level of inflation over the long run - would have the same stabilizing properties as looking at money growth. i do not disagree in theory. but it is not clear to me that those strategies would be easier to implement or have the same anchoring effect on inflation expectations. the implication is the need to cross - check the information on inflationary pressures and risks to price stability ; this cross - checking implies that we bring together and compare different analytical strategies and that we use systematically all the information relevant to decision - making. of course, monetary policy does not react mechanically to monetary developments, but rather responds to the information in monetary aggregates that is relevant for maintaining price stability over the medium term. this is the rationale behind the definition of " a reference value " for monetary aggregates. the monetary pillar supports a risk