henrique meirelles : challenges for monetary policy – brazil and the international context speech by mr henrique meirelles, governor of the central bank of brazil, at the conference “ the impact of brazil on the global scenario ”, sao paulo, 10 july 2008. * * * in mature economies, the years from the beginning of the 1990s to mid - 2007 were characterized by low gdp volatility and low inflation, circumstances that led prominent economists to name the period as the era of the “ great moderation ”. that environment resulted from better monetary policy, a fact that translated into credibility gains for central banks, globalization and advances in productivity linked to information technology developments. at the time there was a substantial consensus that the emergence of asia, particularly of china and india, would contribute to keep global inflation permanently under control. thanks to cheap labor and the intensive use of new technologies on the production process, china – and to a lesser extent india – exported deflation ( or at least disinflation ) to the world economy through a consistent decrease in their export prices. there is now growing evidence that this era might have came to an end with the unbalances between the expansion of global demand and supply. moreover, there are also signs of increasing labor costs in china, due to both changes in labor legislation and increasing shortages of specialized workforce. in the benign environment that prevailed through mid - 2007, central banks of mature economies engaged in neutral or even expansionary monetary policies for relatively long periods. under these circumstances, the traditional pro - cyclicality of credit emerged once again, fuelling asset price inflation ( particularly real estate prices in certain regions of the us and europe ) rather than consumer price inflation. in the past twelve months the scenario changed radically : a severe financial crisis, stemming from the us real estate sector, hit mature economies in general, whereas demand pressures over the availability of limited production factors led to mounting inflation in a global scale. thus, central banks currently face a much more complex and challenging environment than during the years of the great moderation. monetary responses have been initially diverse due to the nature of the problems that surfaced, but the priority on the need to preserve price stability prevails. due to both increases in raw material prices and demand pressures, inflation accelerated sharply around the globe. in mature economies in general, marked by broader levels of idle capacity, higher commodity prices probably explain the bulk of the inflation upsurge. in emerging countries, including brazil, domestic demand pressures have

henrique meirelles : regulation and international standards in brazil, the us, the eu and switzerland speech by mr henrique meirelles, governor of the central bank of brazil, at the first international conference on law & economics, ibmec sao paulo, in cooperation with the foundation for law and economics at the university st gallen, switzerland, held in sao paulo, 2 april 2009. * * * the world is experiencing the most severe economic and financial crisis in 80 years. what started as a deleveraging process in the us banking system has extended to a strong downturn not only in advanced economies, but also in the emerging world. it is emblematic that we are here today in sao paulo discussing regulation at a time the issue is also being discussed at the meeting of heads of states of the g - 20 in london. much of the focus of the meeting relates to the redesign of the international financial system and its regulation, including possibly the outline of a sort of international financial regulator. the current financial turmoil is ultimately a result of the failure of regulators, supervisors and policymakers in the advanced economies to prevent excessive risk - taking and leverage and to account for the interplay between regulated and non - regulated markets, partly due to their fragmented regulatory frameworks, partly due to legal restrictions on information and data sharing. lax regulatory standards, coupled with poor risk management practices, deleterious incentives for risk - taking and deficient corporate governance structures in financial institutions are costing the global economy a high price. throughout the years, brazil has adopted more cautious and broader regulatory standards than the international norm. just to mention a few examples of what i am referring to, there are twenty - one different types of financial institutions under the regulation and supervision of the central bank, from universal banks to credit unions, all sharing common prudential and leverage rules. furthermore, not only capital requirements are higher in brazil than the basel recommendation but also all capital requirements and controls are applied on a consolidated basis that includes non - financial subsidiaries in a banking group, so that most institutions are consolidated for supervision purposes. finally, accounting standards adopted in brazil require that all operations be kept on balance, with the respective risk requirements and provisions. risk management and internal controls regulations, as well as prudential loan loss provisioning requirements and large exposure limits have been in force for many years in brazil. additionally, having learned from past experience of international integration and fast contagion, the central bank makes careful evaluation of financial innovations and