PARIS (MNI) – Monetary policy alone cannot assure financial
stability without the means to combat excessive debt, according to ECB
Governing Council member Christian Noyer.
“We need an additional tool to regulate indebtedness and prevent it
from becoming excessive,” the governor of the Bank of France wrote in a
commentary on a book by Carmen Reinhart and Kenneth Rogoff, “This Time
is Different: A Panoramic View of Eight Centuries of Financial Crises.”
“Reinhart and Rogoff underscore that monetary stability and
financial stability do not necessarily go hand in hand,” Noyer said in
an article for the French business daily Les Echos, published Thursday.
“And indebtedness develops more easily when inflation is low and
interest rates are weak,” he conceded.
“Should the priority of monetary policy for price stability
therefore be abandoned or downgraded?” he asked rhetorically. “I don’t
think so. If price stability is not enough to avoid crises, history has
demonstrated well enough that it is a necessary condition for financial
stability.”
Combatting excessive debt “is the precisely the challenge for
macro-prudential surveillance,” Noyer explained. “The instruments exist.
We must know how to use them and who should use them.”
“Central banks everywhere will play a pivotal role in this new
function,” he said. “In Europe, they will provide the framework for the
European Systemic Risk Board.”
All central banks “will have to assume this new function without
compromising their independence and the effectiveness of their monetary
policy,” Noyer said. “That is where the real challenge lies. The
Eurosystem is very well armed to deal with this, since its mandate is
clear: price stability and, when this is assured, contribute to other
goals. Financial stability is now at the top of the list” of these
goals.
–Paris newsroom +331 4271 5540: email: bwolfson@marketnews.com
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