EDITOR'S NOTE: This speech by Agustín Carstens, General Manager of the Bank for International Settlements may be something of a shocker. Not too long ago, he spoke of transactional anonymity as an irrelevant issue in today’s financial world; boasting that all money, in the form of central bank digital currencies (CBDCs), may one day be controlled by the BIS and that no transactions will take place without their knowledge. Watch Video at 4:33 to see exactly what he says. In the speech below, however, he warns that inflation may continue to increase far higher and longer than most economists expect: “We should not expect inflationary pressures to ease soon as many of the forces behind high inflation remain in place and new ones are emerging.” He argues that the world is facing a new inflationary paradigm; one that the world economy must adapt to; a new normal. But the real surprise is when he writes that “the world economy must learn to rely less on expansionary monetary policies.” Seriously? Wouldn’t that mean stripping central banks of their main powers, possibly leading to the end of the fiat system?
Speech by Agustín Carstens, General Manager of the BIS at the International Center for Monetary and Banking Studies, Geneva, 5 April 2022.
After more than a decade of struggling to bring inflation up to target, central banks now face the opposite problem. Inflation is back. The rise in inflation reflects the rapid and goods-intensive economic recovery from the Covid-19-induced recession – bolstered by highly accommodative fiscal and monetary policy – which supply has been unable to fully meet. We should not expect inflationary pressures to ease soon as many of the forces behind high inflation remain in place and new ones are emerging. There are already signs of increased price spillovers across sectors and between prices and wages, as is common in a high-inflation environment. Moreover, the structural factors keeping inflation low in recent decades may wane as globalisation retreats. The inflationary paradigm may be changing. Central banks need to adjust to this new environment, not least by raising policy rates to more appropriate levels. The world economy must learn to rely less on expansionary monetary policies.