disturbing. indeed, once the immediacy of the crisis is behind us, it will not be surprising if we head for another round of destabilizing global imbalances. how do we manage global imbalances? it is argued that if the us fed had refused to supply the incipient demand for liquidity in the late 1990s and early 2000s, higher interest rates could have prevented the borrowing boom and the follow on widespread deterioration of financial standards and the subsequent melt down. but this also would have meant lower growth in the us and the rest of the world. the short point is that even as macroeconomic imbalances should not be allowed to proliferate, it is necessary to balance the need for global economic growth against the disruptions which follow the unwinding of such imbalances. resolving the problem of global imbalances does not mean eliminating them. as long as there is world trade, certain countries will have surpluses and certain others will run deficits. global imbalances have been, are, and will continue to be inevitable. so, to ask how we can eliminate global imbalances is clearly the wrong question. the right question is this : given that global imbalances are inevitable, how do we ensure that they do not build up to destabilizing levels? monetary & fiscal policy the second issue on questioning the questions relates to monetary and fiscal policy. unnerved by the scale and sweep of the crisis, governments and central banks around the world responded with an unprecedented show of policy force. the size and pace of monetary and fiscal expansion raised a paradoxical situation – even as governments and central banks coordinated and cooperated, many of their familiar conflicts got played out once again. central banks reduced policy rates ferociously, and in many advanced countries the rates are at or near zero. this is the standard tool of monetary policy whereby central banks expect to influence interest rates at the long end, and steer financial conditions and hence the entire economy by adjusting the short term rates. even in normal times, monetary policy transmission is lagged. in the crisis situation, because of the fear and uncertainty in the financial markets, it almost totally lost traction. central banks responded to this alarming impasse through a slew of measures variously described as quantitative and credit easing. it soon became clear that even as monetary policy became the first line of defence and central banks turned lenders of first resort, credit markets were in no mood to revive soon. so

which were marked by the financial crisis. he has gained significant experience during this time. we are glad that he is now returning to our central office as a staff member in the financial stability department. mr thierfelder will be responsible for setting up new market contacts and intensifying our existing ones. with the creation of this new post we hope to be better positioned to identify key risks to financial stability early on. it also testifies to the importance we attach to exchanging views with market participants. feline von heimburg has also been monitoring the development of the financial crisis when working in the financial stability departments of both the deutsche bundesbank and the european central bank. she will now be able to employ the experience she gained in europe in the more hands - on environment of the representative office. let me now thank felix thierfelder for his work over the past three years and welcome feline von heimburg as his successor. i wish both all the best for the future. thank you very much for your attention. bis central bankers ’ speeches