Challenges to Central Banking from Globalized Financial Systems, Conference organized by the IMF Monetary and Exchange Affairs Department and the IMF Institute, September 16-17, 2002

Proceedings of
the conference, published in March 2004

conference@imf.org

IMF Seminars, Conferences and Workshops

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Challenges to Central Banking from Globalized Financial Systems
Conference organized by the IMF Monetary and Exchange Affairs Department and the IMF Institute
Meeting Halls A & B

September 16–17, 2002

The objective of the conference was to assess new challenges to central banking posed by the globalization of financial systems in industrial and emerging market economies. Globalization has produced larger, faster-moving, and more integrated financial markets and systems. Central banks are now grappling with new and difficult policy challenges generated by this more dynamic financial environment.

Against this background, the first day of the conference was on monetary and exchange rate policies and included sessions on the role of the central bank in a highly dollarized economy, monetary unions, inflation targeting for emerging market economies, and the central bank's role in debt and reserve management. The second day of the conference was on financial stability and included sessions on stability as an explicit central bank policy objective, using macroprudential indicators, and the role of the central bank in a financial crisis.

Conference papers will be posted on this website as soon as they become available.

Program (Use the free Adobe Acrobat Reader to view PDF files.)

Monday, September 16
Monetary and Exchange Rate Policies under Integrated Capital Markets

9:00 a.m.–9:30 a.m. Opening Remarks by Mr. Eduardo Aninat, Deputy Managing Director

Introduction by Mr. Stefan Ingves, Director IMF Monetary and Exchange Affairs Department, and Mr. Mohsin Khan, Director IMF Institute

9:30 a.m.–10:45 a.m. Session 1: The Role of the Central Bank in a Highly Dollarized Economy

Chair: Mr. Alfredo Leone, Assistant Director, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Richard Webb, Governor Banco Central de Reserva del Peru

Discussant: Mr. Alain Ize, Advisor, IMF Monetary and Exchange Affairs Department Bank

Dollarization can greatly complicate monetary policy implementation and the preservation of financial stability. How should monetary management be designed in the context of a limited role of domestic currency? How does dollarization alter systemic financial risks?

10:45 a.m.–11:15 a.m. Coffee break

11:15 a.m.–12:30 p.m.
Session 2: Regional Monetary Arrangements

Chair: Ms. Anne-Marie Gulde, Division Chief, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Gert Jan Hogeweg, Director General Economics, European Central Bank

Discussant: Mr. K. Dwight Venner, Governor Eastern Caribbean Central Bank

A monetary union is one of the "corner solutions" of exchange rate regimes (hard pegs versus flexible exchange rates) for countries open to international capital flows. What are the major challenges on the road to monetary union? What institutional arrangements can ensure the functioning of a monetary union (e.g. convergence criteria, fiscal rules)? How can monetary policy be conducted in the union?

12:30 p.m.–2:30 p.m. Luncheon (by invitation)

2:30 p.m.–3:45 p.m.
Session 3: Inflation Targeting "Lite"

Chair: Mr. Warren Coats, Assistant Director, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Mark Stone, Senior Economist, IMF Monetary and Exchange Affairs Department

Discussant: Mr. Jerzy Pruski, Member of the Monetary Policy Council, National Bank of Poland

Less formal variations of inflation targeting could be appropriate for smaller, less open emerging market countries unable to adopt an intermediate exchange rate regime and not wanting to adopt a currency board. What are the minimum prerequisites for a monetary policy guided by inflation targets? How can monetary policy be implemented under such a framework?

3:45 p.m.–4:15 p.m. Coffee break

4:15 p.m.–5:30 p.m.
Session 4: The Central Bank's Role in Debt and Reserve Management

Chair: Mr. Bernard Laurens, Deputy Division Chief, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Hugo Frey Jensen, Assistant Director and Head of the Capital Markets Department, Danmarks Nationalbank

Discussant: Mr. Michael Reddell, Head of Financial Markets, Reserve Bank of New Zealand

Recent experience has shown that public debt and reserve management can not only enhance monetary policy but also improve financial stability. Should the central bank or separate debt and reserve management agencies take the lead in managing government debt? How is monetary policy and debt and reserve management best coordinated? If a central bank takes the lead, what is its role in ensuring a sustainable level of debt and its targets of monetary policy?

6:00 p.m.–7:30 p.m. Reception

3:45 p.m.–5:00 p.m. Continuation

Tuesday, September 17 The New Challenges to Financial Stability

9:00 a.m.–10:15 a.m. Session 5: Should Financial Stability be an Explicit Central Bank Objective?

Chair: Mr. Hassanali Mehran, Senior Advisor, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Roger W. Ferguson Jr., Vice Chairman of Board of Governors of the Federal Reserve System

Discussant: Mr. André Icard, Deputy General Managing Director, Bank for International Settlements

Financial instability owing to its real costs can be a goal of monetary policy in addition to the principal objective of price stability. How can the central bank conduct policy in support solely of financial stability without impairing price stability? What is the role of a preset policy response? How does the choice between bank supervision by a unified agency or by the central bank bear on financial stability as a monetary policy goal?

10:15 a.m.–11:45 a.m. Coffee break

10:45 a.m.–12:00 p.m.
Session 6: Using Financial Soundness Indicators to Assess Financial Stability

Chair: Mr. Mark Swinburne, Division Chief, IMF Monetary and Exchange Affairs Department

Presenter: Mr. V. Sundararajan, Deputy Director, IMF Monetary and Exchange Affairs Department and Mr. R. Sean Craig, Senior Economist, IMF Monetary and Exchange Affairs Department

Discussant: Mr. Jarle Bergo, Deputy Governor Norges Bank

Greater appreciation of the role of financial surveillance has led to increased reliance on Financial Soundness Indicators (FSIs) by central banks. This has given rise to a number of questions: What are the uses and limitations of the different FSIs? How should FSIs be used in combination with other surveillance tools? In what ways does financial sector surveillance using FSIs contribute to central banks' capacity to fulfill their mandate? And, how are FSIs used in the context of the IMF's Financial Sector Assessment Programs (FSAP)?

12:00 p.m. –2:00 p.m. Luncheon (by invitation)

2:00 p.m.–3:15 p.m.
Session 7: The Role of Central Banks in Financial Crises

Chair: Mr. Stefan Ingves, Director, IMF Monetary and Exchange Affairs Department

Presenter: Mr. Mario Blejer, former Governor Banco Central de la Republica Argentina

Discussant: Mr. Kyu Yung Chung, Director General, Research Department, Bank of Korea

In a globalized world financial crises can be triggered by country-specific problems (Argentina, Indonesia, etc.) and potentially by extraordinary global events (September 11, Y2K, etc.). What are the primary challenges in a crisis? Under what circumstances should central banks take a leading role in crises and what should be their role? Should crisis policies be established ahead of time?

3:15 p.m.–3:45 p.m. Coffee break

3:45 p.m.–5:00 p.m.
Roundtable Session: Key Lessons from the Conference

Chair: Mr. Mohsin Khan, Director IMF Institute

Discussants:

Mr. Francis Chu, Chief Representative, Hong Kong Monetary Authority, New York Representative Office

Mr. Brian Kahn, Head Monetary Policy Research, South African Reserve Bank

Mr. V. Sundararajan, Deputy Director, IMF Monetary and Exchange Affairs Department

5:00 p.m.
Closing Remarks

Mr. Stefan Ingves, Director IMF Monetary and Exchange Affairs Department

Program (Use the free Adobe Acrobat Reader to view PDF files.)
*Monday, September 16*	Monetary and Exchange Rate Policies under Integrated Capital Markets

9:00 a.m.–9:30 a.m.	Opening Remarks by Mr. Eduardo Aninat, Deputy Managing Director Introduction by Mr. Stefan Ingves, Director IMF Monetary and Exchange Affairs Department, and Mr. Mohsin Khan, Director IMF Institute
9:30 a.m.–10:45 a.m.	Session 1: The Role of the Central Bank in a Highly Dollarized Economy Chair: Mr. Alfredo Leone, Assistant Director, IMF Monetary and Exchange Affairs Department Presenter: Mr. Richard Webb, Governor Banco Central de Reserva del Peru Discussant: Mr. Alain Ize, Advisor, IMF Monetary and Exchange Affairs Department Bank Dollarization can greatly complicate monetary policy implementation and the preservation of financial stability. How should monetary management be designed in the context of a limited role of domestic currency? How does dollarization alter systemic financial risks?
10:45 a.m.–11:15 a.m.	Coffee break
11:15 a.m.–12:30 p.m.	Session 2: Regional Monetary Arrangements Chair: Ms. Anne-Marie Gulde, Division Chief, IMF Monetary and Exchange Affairs Department Presenter: Mr. Gert Jan Hogeweg, Director General Economics, European Central Bank Discussant: Mr. K. Dwight Venner, Governor Eastern Caribbean Central Bank A monetary union is one of the "corner solutions" of exchange rate regimes (hard pegs versus flexible exchange rates) for countries open to international capital flows. What are the major challenges on the road to monetary union? What institutional arrangements can ensure the functioning of a monetary union (e.g. convergence criteria, fiscal rules)? How can monetary policy be conducted in the union?
12:30 p.m.–2:30 p.m.	Luncheon (by invitation)
2:30 p.m.–3:45 p.m.	Session 3: Inflation Targeting "Lite" Chair: Mr. Warren Coats, Assistant Director, IMF Monetary and Exchange Affairs Department Presenter: Mr. Mark Stone, Senior Economist, IMF Monetary and Exchange Affairs Department Discussant: Mr. Jerzy Pruski, Member of the Monetary Policy Council, National Bank of Poland Less formal variations of inflation targeting could be appropriate for smaller, less open emerging market countries unable to adopt an intermediate exchange rate regime and not wanting to adopt a currency board. What are the minimum prerequisites for a monetary policy guided by inflation targets? How can monetary policy be implemented under such a framework?
3:45 p.m.–4:15 p.m.	Coffee break
4:15 p.m.–5:30 p.m.	Session 4: The Central Bank's Role in Debt and Reserve Management Chair: Mr. Bernard Laurens, Deputy Division Chief, IMF Monetary and Exchange Affairs Department Presenter: Mr. Hugo Frey Jensen, Assistant Director and Head of the Capital Markets Department, Danmarks Nationalbank Discussant: Mr. Michael Reddell, Head of Financial Markets, Reserve Bank of New Zealand Recent experience has shown that public debt and reserve management can not only enhance monetary policy but also improve financial stability. Should the central bank or separate debt and reserve management agencies take the lead in managing government debt? How is monetary policy and debt and reserve management best coordinated? If a central bank takes the lead, what is its role in ensuring a sustainable level of debt and its targets of monetary policy?
6:00 p.m.–7:30 p.m.	Reception
3:45 p.m.–5:00 p.m.	Continuation

*Tuesday, September 17*	The New Challenges to Financial Stability

9:00 a.m.–10:15 a.m.	Session 5: Should Financial Stability be an Explicit Central Bank Objective? Chair: Mr. Hassanali Mehran, Senior Advisor, IMF Monetary and Exchange Affairs Department Presenter: Mr. Roger W. Ferguson Jr., Vice Chairman of Board of Governors of the Federal Reserve System Discussant: Mr. André Icard, Deputy General Managing Director, Bank for International Settlements Financial instability owing to its real costs can be a goal of monetary policy in addition to the principal objective of price stability. How can the central bank conduct policy in support solely of financial stability without impairing price stability? What is the role of a preset policy response? How does the choice between bank supervision by a unified agency or by the central bank bear on financial stability as a monetary policy goal?
10:15 a.m.–11:45 a.m.	Coffee break
10:45 a.m.–12:00 p.m.	Session 6: Using Financial Soundness Indicators to Assess Financial Stability Chair: Mr. Mark Swinburne, Division Chief, IMF Monetary and Exchange Affairs Department Presenter: Mr. V. Sundararajan, Deputy Director, IMF Monetary and Exchange Affairs Department and Mr. R. Sean Craig, Senior Economist, IMF Monetary and Exchange Affairs Department Discussant: Mr. Jarle Bergo, Deputy Governor Norges Bank Greater appreciation of the role of financial surveillance has led to increased reliance on Financial Soundness Indicators (FSIs) by central banks. This has given rise to a number of questions: What are the uses and limitations of the different FSIs? How should FSIs be used in combination with other surveillance tools? In what ways does financial sector surveillance using FSIs contribute to central banks' capacity to fulfill their mandate? And, how are FSIs used in the context of the IMF's Financial Sector Assessment Programs (FSAP)?
12:00 p.m. –2:00 p.m.	Luncheon (by invitation)
2:00 p.m.–3:15 p.m.	Session 7: The Role of Central Banks in Financial Crises Chair: Mr. Stefan Ingves, Director, IMF Monetary and Exchange Affairs Department Presenter: Mr. Mario Blejer, former Governor Banco Central de la Republica Argentina Discussant: Mr. Kyu Yung Chung, Director General, Research Department, Bank of Korea In a globalized world financial crises can be triggered by country-specific problems (Argentina, Indonesia, etc.) and potentially by extraordinary global events (September 11, Y2K, etc.). What are the primary challenges in a crisis? Under what circumstances should central banks take a leading role in crises and what should be their role? Should crisis policies be established ahead of time?
3:15 p.m.–3:45 p.m.	Coffee break
3:45 p.m.–5:00 p.m.	Roundtable Session: Key Lessons from the Conference Chair: Mr. Mohsin Khan, Director IMF Institute Discussants: Mr. Francis Chu, Chief Representative, Hong Kong Monetary Authority, New York Representative Office Mr. Brian Kahn, Head Monetary Policy Research, South African Reserve Bank Mr. V. Sundararajan, Deputy Director, IMF Monetary and Exchange Affairs Department
5:00 p.m.	*Closing Remarks* Mr. Stefan Ingves, Director IMF Monetary and Exchange Affairs Department