King Sees Risk of More Currency Management as Imbalances Persist
Bank of England Governor Mervyn King said the Group of 20 nations must revive efforts to address global imbalances or more countries may start using exchange rates as their key tool for monetary policy.
Since their agreement on stimulus in 2009, “the G-20 has gone backward since then, and there has been no agreement on the need for working together to achieve some element of rebalancing the world economy,” King said in a speech in New York late yesterday. “My concern is that in 2013 we’ll see the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy.”
In an overview of the financial crisis and central banks’ responses since 2008, King said the current-account balances that helped to trigger the global recession still linger, and his call for more action echoes previous statements made in recent years. On the global economy, he said it’s “fair to say a recovery of a durable kind is proving elusive.”
“A reasonable central view would mean that we would expect to see some pick up in lending and investment, we would expect to see the squeeze on consumer spending ease somewhat,” he said. “And we would hope that they might find some way of making the conditions in the euro area more conducive to an expansion of trade within Europe.”
King, who is due to retire in June, also said he’s confident that U.S. lawmakers will hammer out a budget deal in talks aimed at avoiding the so-called fiscal cliff -- the more than $600 billion in spending cuts and tax increases set to take effect in January if Congress doesn’t act.
“We have great confidence that one way or another the U.S. will find a way, if not of avoiding going over the cliff, at least hanging on by the fingertips and not falling down on the other side,” he said in response to a question from the audience. “I’m confident in the end you’ll find a way of doing it.”
Asked about Bank of Canada Governor Mark Carney, who will succeed him next year, King said Carney will “do a great job.” King also said he favors transparency of policy makers’ decision-making over giving guidance on the outlook for interest rates. The latter is used by Carney in his current position.
“No one knows what the future holds,” King said. “We don’t believe in the Bank of England we have a crystal ball which enables us to foretell the future. We simply do not know what we will be deciding in six, 12 months, two years from now.”
“What is important I think is to have sufficient transparency about how we will react to events as they unfold,” he told the audience at the event.
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