(Finance) – “In the face of persistent supply shocks, independent central banks can and will continue to ensure the price stability. But this can be achieved at a lower cost if other policies cooperate and help to rebuild supply capacity”. He said so Christine Lagardepresident of the European Central Bank (ECB), at an event in New York.
“For example – he explained – if fiscal and structural policies focus on removal of supply constraints created by the new geopolitics, such as ensuring resilient supply chains or diversifying energy production, we could see a virtuous circle of lower volatility, lower inflation, higher investment and higher growth. But if instead fiscal policy focuses primarily on income support to offset cost pressures (in excess of temporary and targeted responses to sudden large shocks), this will tend to raise inflation, raise borrowing costs and reduce borrowings. investments in new offer”.
In this sense, “to the extent that geopolitics leads to a fragmentation of the global economy into competing blocs, this requires a greater political cohesion – he added – Not by compromising independence, but by recognizing the interdependence between policies and how each can best achieve its objective when aligned behind a strategic objective”.
Lagarde’s speech also addressed mounting anecdotal evidence that some countries intend to increase theirs use of alternative currencies to major traditional currencies for international trade billing, such as the Chinese renminbi or Indian rupee. The ECB chief also pointed out that we are seeing an increase in the accumulation of gold as an alternative reserve asset, likely driven by countries with closer geopolitical ties to China and Russia.
“These developments do not indicate any imminent loss of dominance for the US dollar or the euro,” Lagarde said. “Data so far show no substantial changes in the use of international currencies. But they suggest that international currency status should no longer be taken for granted“.