A Small Step Toward Monetary “Coordination” at the G-20?

This weekend’s G-20 statement reiterated the concerns—largely coming from emerging market countries—about unconventional monetary policies (UMP). But the language of the central bankers and finance ministers was subtly softened. In July and October 2013 the G-20 statements contained warnings about such monetary policies’ “adverse implications for economic and financial stability” and the need to “manage their spillovers on other countries.” But this weekend it simply said central bankers should be “mindful of impacts on the global economy,” adding that “reduced reliance on easy monetary policy would be beneficial in the medium term for financial stability.” So rather than saying the policy is harmful it said that removing it is beneficial.

This statement is remarkably mild compared to the candid views of some central bankers, such as Raghu Rajan who said this about unconventional monetary last summer before he joined the Reserve Bank of India, “Never in the field of economic policy has so much been spent, with so little evidence, by so few.”

But I think it is more than simply a diplomatic effort to seek a more agreeable tone.  The central bankers and finance ministers seemed actually to agree that a gradual and transparent tapering of UMP is appropriate now, regardless of what they think of the past effects of UMP.

It also gives more meaning and credibility to the boilerplate pledge repeatedly appearing in recent statements that “monetary policy settings will continue to be carefully calibrated and clearly communicated.”  It perhaps is even a small step toward a bit more coordination in the sense used in a BIS paper I presented to central bankers gathered in Switzerland last June: “Going forward the goal should be an expanded rules-based system similar to the 1980s and 1990s which would operate near an international cooperative equilibrium. International monetary policy coordination—at least formal discussions of rules-based policies and the issues reviewed here—would help the world get to this desirable situation.”

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