BIS channels Raghuram Rajan amid calls for new global monetary order

Frankfurt: The world’s dollar-dominated monetary order has serious instabilities that can best be fixed by central banks explicitly coordinating policy, Claudio Borio, the chief economist of the Bank for International Settlements, argued in a new paper. The “most ambitious possibility would be to develop and implement new global rules of the game that would help instill greater discipline in national policies.” As the global economy shudders at the prospect of a simultaneous slowdown in China and tightening of monetary policy in the US, more attention is now being paid to the cost that countries pay when monetary or fiscal policy in other jurisdictions changes direction. As the interests of domestic policy usually give little space to consideration of the spillovers to others, Borio argued that this gives rise to financial imbalances elsewhere that can “take the form of unsustainable credit and asset-price booms that overstretch balance sheets on the back of aggressive risk-taking.” Three levels of cooperation or coordination would be feasible to lower the chances of a repeat of the 2008 global financial crisis, Borio wrote. “When setting domestic policies, countries would individually seek to take spillovers and spillbacks more systematically into account.” Currently, Group of 20 nations agree that their monetary policies ought to avoid a spiral of competitive currency devaluations, amid persistent concerns that monetary easing is being aimed at artificially boosting countries’ export positions. “Cooperation could extent to occasional joint decisions, on both interest rates and foreign exchange intervention, beyond the well-honed responses seen during crises,” Borio wrote.