mr george ’ s closing speech at the euromoney international bond congress speech by the governor of the bank of england, mr e a j george, at the euromoney international bond congress in london on 10 / 02 / 99. thank you, padraic. i wasn ’ t quite sure what you had in mind when you asked me to wind up this congress once again this year. i couldn ’ t remember what i ’ d done to wind you all up last year! but i am happy to join you anyway at what has become – in five short years – an unmissable event in the calendar for anyone with an interest in the international bond markets. and what an extraordinary year it ’ s been since we all last met here. despite all the upsets – beginning in asia, then russia and most recently brazil – which had everyone scrambling for liquidity and desperate to reduce risk, it proved, on ifr ’ s figures, to be a record year for international bond issues, with total issuance rising by some 17 % to over a trillion dollars equivalent. that can ’ t have been bad for fees! and altogether it suggests you had a pretty good year – apart from those of you who chose to go on holiday in august leaving someone else to look after your long positions in russian bonds. inevitably issuance by emerging market economies fell away, but issuance by supranational and sovereign borrowers in aggregate still accounted for some 30 % of total issuance. at the same time, higher rated corporate borrowers took advantage of lower yields to strengthen their balance sheets, accounting for 45 % of total issuance. this was despite a general widening of credit spreads – which though they have come back some way from the peak levels of the autumn are – and are likely to remain – substantially wider than before the emerging markets crisis, reflecting a more sober assessment of relative credit risk. against that, the bond markets generally benefited substantially from continuing low inflation and a further decline in inflationary expectations, so that yields have declined in virtually all the main currency sectors. in terms of government bonds they have come down by 100 basis points in the us, by 150 basis points in bunds, by close to 200 basis points in the sterling gilt market, and even by over 100 basis points in japan before yields there began to back up late last year. borrowers have been attracted by lower nominal borrowing costs ; and investors in the market have been attracted by the prospect of rising values as

and slightly more complex than they were before. one might say that we are going from a situation with one instrument and a relatively straightforward and clear objective, to a situation with several instruments and a more multifaceted objective. this sounds quite logical and natural to my ears, given what has happened in recent years, and i believe that this is the direction in which we are headed. but as i mentioned in my discussion of independence, there are some problems that need to be resolved along the way. the central banks became independent during a period that one might be able to call the “ golden age ” of inflation targeting, when everything looked relatively straightforward – when the policy rate was in principle set to attain price stability and when one took financial stability more or less for granted. the world that now appears to be emerging is more complicated. it is necessary to reconsider where the boundary lines should be drawn between what should be delegated to independent central banks and what should be managed by the political system. finding the best way of doing this is one of the major challenges ahead of us. see gerlach ( 2013 ). results from a study by bech, gambacorta and kharroubi ( 2012 ) indicate that monetary policy is less efficient when it comes to counteracting a recession and contributing to a recovery after a financial crisis. posen ( 2013 ) says that more powerful quantitative easing would have facilitated the recovery in the united kingdom, but that the fact that this was not implemented has nothing to do with inflation targeting and it would not have been easier with a different type of monetary policy. see, for example, banerjee, cecchetti and hofmann ( 2013 ). whelan ( 2013 ) says that inflation targeting should actually be abandoned in favour of a solution where the central banks are given a broader mandate and more instruments at their disposal. for discussions of how the crisis has affected views on monetary policy and the work of the central banks, see for instance blanchard, dell ’ ariccia and mauro ( 2013 ). bis central bankers ’ speeches i began by noting how easy it is to get caught in what i called the prevailing paradigm. but if we had fastened in a monetary policy paradigm prior to the crisis, where we believed that we had found the right solutions, i think that we are now in a situation where there is an unusually large sense of caution when looking ahead. we have all been thoroughly shaken up. the crisis had not been