PARIS (Reuters) - Bank of Canada Governor Mark Carney threw his support on Thursday behind calls for reform of the international monetary system, saying it was an inevitable byproduct of an increasingly multi-polar global economy.
Carney said the rise of China and other emerging powers as the main drivers of growth represented a global shift that was unprecedented in history.
“Any monetary system would show strains and fragilities in the face of such massive structural change,” Carney told the Institute of International Finance, a bankers group, ahead of a meeting of G20 finance ministers and central bank governors.
“The French presidency’s initiative to put reform of the IMS (international monetary system) on the top of the agenda is absolutely appropriate,” he said.
French President Nicolas Sarkozy has called for a “new Bretton Woods” system for the 21st century. One aspect of that reform would be a move away from the dollar’s preeminence as a reserve currency and consideration of the longer-term use of the IMF’s Special Drawing Rights (SDRs) as a reserve asset.
Many officials support the idea in principle of the Chinese yuan becoming part of the SDR basket of currencies, but say that is unlikely to happen unless it becomes fully convertible.
Carney said an “increasingly unstable hybrid of fixed and floating exchange rate regimes” was fostering disinflationary or deflationary risks in advanced economies and inflationary risks in emerging economies.
“It promoted, in our opinion, the enormous buildup of debt that preceded the crisis and could complicate, is complicating the necessary balance sheet repair in its wake,” he said.
He said large sovereign borrowing needs and required business investment underscored the need to keep the global financial system open, suggesting regulators should not clamp down too hard on the banking sector as they seek to prevent another crisis.
“It would be sheer incompetence to move from a savings glut to one that is capital starved,” he said.
Reporting by Louise Egan; Editing by Ruth Pitchford