talk was of currency conflicts. such conflicts are, however, symptoms of a deeper disagreement on the appropriate time path of real adjustment. since surpluses and deficits must add to zero for the world as a whole, differences between these desired ex ante adjustment paths are reconciled ex post by changes in the level of world output. and the risk is that unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result. the international monetary system today has become distorted. the major surplus and deficit countries are pursuing economic strategies that are in direct conflict. and there are some innocent victims. those emerging market economies which have adopted floating currencies are now suffering from the attempts of other countries to hold down their exchange rates, and are experiencing uncomfortable rates of capital inflows and currency appreciation. so there is more to this issue than a bilateral conflict between china and the united states. at the g7 meeting in october 2008, i was part of the group of ministers and central bank governors who threw away the prepared communique, and replaced it by a bold short statement of our determination to work together. that spirit, so strong then, has ebbed away. current exchange rate tensions illustrate the resistance to the relative price changes that are necessary for a successful rebalancing. the need to act in the collective interest has yet to be recognised, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing. that could, as it did in the 1930s, lead to a disastrous collapse in activity around the world. every country would suffer ruinous consequences – including our own. but, to borrow a phrase, in order to be tough on protectionism, we need also to be tough on the causes of protectionism. so what needs to be done? let me suggest two principles for the way ahead. first, focus discussion on the underlying disagreement about the right speed of adjustment to the real pattern of spending. without agreement on this, policies will inevitably conflict. once broad agreement is reached, it should be easier to agree on the instruments of policy. second, in terms of policy instruments, put on the table many potential policy measures – not just the single issue of exchange rates. that should include, in addition to exchange rates, rules of the game for controlling capital

all. that is restraining activity and pushing down the outlook for inflation. so the bank of england has taken extraordinary monetary policy measures – through our so - called “ quantitative easing ” programme of asset purchases – to ensure that the amount of money starts growing again in order to support a recovery and keep inflation on track to meet our target in the medium term. my first speech as governor – in 2003 – was also in the midlands. in it, i talked about the non - inflationary consistently expansionary – or “ nice ” – decade from the early 1990s to the early 2000s. i argued that the next decade was unlikely to be as nice because, and i quote, “ when shocks, as they will, hit our economy it is almost inevitable that there will be somewhat greater volatility of both output and inflation than the remarkable stability to which we have become used in recent years ”. i certainly did not anticipate the scale of the downturn in the world economy that followed the collapse of the banking system in 2008. but i did point to the need for a rebalancing of demand in the uk economy because, as i said then, “ the strategy which the mpc has pursued in recent years – stimulating domestic demand to compensate for weak external demand in the face of a strong exchange rate – carries the risk that there could be a sharp correction to the level of consumer spending at some point in the future ”. the counterpart to strong consumption in the past was low saving. having averaged close to 20 % in the 1960s and 70s, gross national savings fell to just 12 % of income in 2009 – the lowest since the war. this was all the more remarkable because one might have expected saving to increase as life expectancy rose. in the coming years, we will have to save more, even though the immediate concern is to ensure a recovery in demand. so the case for rebalancing is even stronger in the wake of the financial crisis and recession that followed the nice decade. to achieve a rebalancing we need to sell more to, and buy less from, economies overseas. to close the gap between exports and imports, more than half a million jobs will probably need to be created in businesses producing to sell overseas – compensating for fewer employment opportunities serving uk consumers or the public sector. such an adjustment is unlikely to be smooth. unless the fall in domestic spending coincides with the necessary increase in net exports, the path for the economy will be bumpy