09 November 2011

Deutsche Bundesbank/Weidmann: Managing macro-prudential and monetary policy – a challenge for central banks

Dr Jens Weidmann, President of the Deutsche Bundesbank, focuses in his speech on:

• conceptual aspects of the interrelations between financial stability and monetary policy, and points out that, since both policy fields pursue separate objectives, an individual set of instruments for macroprudential policy is needed;
• operational aspects of macro-prudential policy. In particular, Weidmann highlighted that macro-prudential policy will rightly gain in importance, and that central banks ought to make a substantial contribution, without however compromising their main objective – price stability – and their independence;
• how central banks can fulfil their mandate if risks to macro-economic and financial stability emanate from unsound public finances and structural economic weaknesses, yet policymakers do not succeed in putting these deficiencies right.

Before there was time to implement all the lessons learnt from the financial crisis, the European sovereign debt crisis has posed new and substantial challenges. This is particularly true for central banks, as their primary mandate of ensuring price stability not only has to be internally reconciled with efforts better to ensure financial stability, but is at the same time exposed to a crisis situation in which the line between monetary and fiscal policy is growing increasingly blurred.

In this situation, it is important not to overburden central banks. Primarily, they should continue to focus on maintaining price stability, a task at which they have an excellent and proven track record. In addition, central banks will play an important role in macro-prudential policy, both at the national and at the international level, for example as members of the ESRB. But the stability of financial and monetary systems depends on more than these columns and micro-prudential supervision. A sound macro-economic and fiscal basis is equally important, and it is not central banks but policymakers that have the means and the legitimacy to ensure this basis.

Full speech

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