hermann remsperger : emerging markets, the us dollar and the euro – reflections on the global monetary system speech by professor dr hermann remsperger, member of the executive board of the deutsche bundesbank, at an economist seminar hosted by the bank of finland, helsinki, 18 april 2008. * * * i would like to start by thanking the bank of finland for hosting this seminar and providing me with the opportunity to share with you some thoughts on developments in the global monetary system. 1 my focus today will be on emerging markets. this may be at odds with most recent events in financial markets which suggest that the spotlight should be turned on the group of advanced economies. but as many speeches and papers have already been devoted to the financial market turmoil, i think it is useful to redirect attention to emerging market economies, not least given their growing importance for developments in the global economy. my remarks will attempt to address three questions. 1. how has emerging markets ’ participation in the global monetary system evolved in recent years? 2 2. can emerging markets sustain the current form of their participation in the global monetary system? 3. what do potential developments in emerging markets imply for the future role of the main international currencies, the us dollar and the euro, in the global monetary system? i. the international monetary system since the early 2000s let me first turn to the question on how emerging markets have been participating in the global monetary system in the past few years. i shall answer it by looking at the three main building blocks of the “ impossible trinity ” hypothesis – exchange rate regimes, financial integration and monetary policy. exchange rate regimes about ten years ago, in the wake of the financial crises of the mid - and late 1990s, the “ impossible trinity ” became the main pillar of what has been called the “ bipolar view ” of exchange rate regimes ( fischer 2001 ). with an increasingly open capital account, emerging i wish to thank adalbert winkler for his input in the preparation of these remarks, and karlheinz bischofberger, ulrich grosch and sabine herrmann for their valuable comments and suggestions. in the literature, this question has been at the core of the debate on the “ bretton woods ii ” system with a core being the united states, and a periphery consisting mainly of the emerging asian economies ( dooley, folkerts - landau and garber, 2003 ). according to this view, core and periphery are linked through pegged or managed exchange

##vening a forum of financial stability. what is the philosophy behind that proposal? firstly, there is the conviction that sweeping institutional changes are not necessary. instead, a process to improve coordination between existing national and international authorities and groupings is important for improving the functioning of the market and, in doing so, promoting the stability of the financial system. secondly, a permanent body which brings together major experts on supervisory issues, either technical or political representatives, either at the national or at the international level has more potential to be a driving force for practical change than several ad - hoc - groups may have. how is the forum composed? members of the forum are : representatives of the ifis, the bis and the oecd, representatives of key international regulatory groupings, namely the basel committee on banking supervision, iosco, the international association of insurance supervisors, central bank experts concerned with market infrastructure from the committee on payment & settlement systems and the committee on the global financial system and — not least — representatives of the national authorities — the ministries of finance, central banks and senior supervisory authorities — initially of the g - 7 countries. what is the forum ’ s field of activity? the g - 7 report identifies three areas where improvement is necessary. the first potential area concerns the assessment of vulnerabilities affecting the global financial system. these kinds of information - pooling - and - processing activity must be clearly separated from normal macro - economic policy assessment. the forum should obviously not attempt the imf ’ s systematic surveillance of individual countries, although cases may arise where financial vulnerabilities in individual counties merit the forum ’ s attention. a second potential area of activity for the forum is identifying and overseeing actions needed to address the vulnerabilities affecting the global financial system, including encouraging the development or strengthening of international best practice and standards and defining priorities for addressing and implementing them. a third potential area of activity for the forum is improving mutual coordination and the exchange of information among the various authorities responsible for financial stability ( a sort of permanent round - table ). in this respect, the forum should be a vehicle for the regular in - depth exchange of information among the international financial institutions and the international regulatory groupings. how should the forum work? the forum should not duplicate work being undertaken elsewhere. the forum should, rather, work through its members, taking due account of their comparative advantages. specifically, the forum should bring together information about activities taking place in diverse groupings and coordinate overlapping activities. in