 Welcome back, everyone. We will now start with the policy panel, which will be moderated by Claire Jones, and the participants are Mark Carney, Mario Draghi and Stanley Fisher, and Claire, without further ado, the floor is yours. Thank you. The past 20 years have been an era of transformation for the central banks, not just in Europe, but I think beyond in all of the advanced economies. We've seen unprecedented measures in response to the global financial crisis, and some of what's happened has led to fundamental questions about some of the tenets of how to do central banking best. We've also seen a lot of attention cast on central banks. They've been an incredible spotlight, and you've really seen that lead to fundamental questions about their independence too. The people that we have on stage today have played a vital role in this era of transformation of the central banks, so without further ado, I'd like to give the floor to the Governor of the Bank of England, Mark Carney. Thank you. Thank you very much, Claire. I'm going to use the lectern. It gives me an era of authority, and I also brought some pictures to distract you. I was asked the theme of this, the topic is past, present and future, I think, and I was given the past. I was the future once, but now I'm in the past. But it's an honour to be on this panel, and I do want to start with a caveat, the usual caveat that the past provides, no guide to future performance. The reason I'm saying that is actually my reflections are about history alone. I'm speaking during the blackout period of the MPC. We have those who follow us. We have a rate decision coming out on Thursday, so my comments have no bearing whatsoever on that decision. There are no messages coded or clarion in what follows. There are no messages about policy, but there's one message that I wanted my presence here today to convey, which is to pay homage to President Draghi's extraordinary leadership of the ECB, the ESRB, the FSB, and by example of the G7 and G20. As you heard in the introduction, it's been an extraordinarily challenging period, but these challenges have been met, not least because of Mario's leadership, his innovation and his determination. Thank you. That's all I have. It's probably the safest thing. Why don't I say a few words about how policies evolved over the last 20 years drawing on the experiences of the ECB and the Bank of England? Obviously, the crisis divides the period into roughly two decades. In the decade prior to the crisis, in both economies, inflation targets were achieved without causing undesirable volatility and output employment, so Olivier's divine coincidence, as he reminded us last night. Both regions experienced continuous strong expansions in activity, and it wasn't entirely surprising that those sort of end-of-history declarations of the Great Moderation were increasingly commonplace. But of course, as this room knows, underneath that nominal stability massed growing financial imbalances and increasing strains in competitiveness, and the financial crisis would throw sharp relief rather on what was a healthy focus on price stability, how it had became a dangerous distraction. We won the war against inflation only to lose the peace, and when the music stops, the consequences for the real economy were dire. In both the Euro area and the UK, output fell by about 6%, so similar output fell. Unemployment rose initially by 2.5 percentage points. It took seven years in both our economies for GDP per capita to recover to its pre-crisis levels. In response, the financial system and the institutional architecture were fundamentally reformed, higher capital requirements, liquidity standards, major reforms to help end big to fail and implementing macro-prudential policies. To safeguard these reforms, Europe now has the SSM and the ESRB. The Bank of England now houses the Financial Policy Committee and the Potential Regulatory Committee. The independence of those committees and their accountability to their people through their respective parliaments are essential bulwarks against the inevitable recidivism that follows a financial crisis. The longer we go without a financial disruption, the more important it is to remember that when it comes to financial stability, success is an orphan. Now, since the crisis, growth in both the Euro area and the UK has been on average about a percentage point lower than prior. Inflation has been twice as volatile and there has been a persistent margin of spare capacity with unemployment on average over the period about 1 to 1.5 percentage points higher. But this is where the two economies diverge. The Euro area has continued to experience divine coincidence. The UK has not. In the Euro area, inflation has averaged half a point below target, reflecting in part a drag from persistent slack. In contrast, UK inflation has been above target. It's averaged 2.3% during a period when the economy there was operating substantially below potential. That reflects the inflationary impacts of two large depreciations and quite substantial pass-through, as well as weak productivity growth that more than offset what was a very large and positive supply shock in the UK labour market. Now, in these circumstances, it's been critical for the Bank of England to utilize the flexibility under its remit. It was partly by design, but we were fortunate that in 2013 that remit was clarified the ability to elongate the horizon over which we returned inflation to target in order to avoid causing undesirable volatility in output and employment. And we have used that flexibility most notably following the referendum when there was a large depreciation in anticipation of significant real impacts that have not yet occurred. Now, in response to this challenging environment, there have been significant innovations in the conduct of monetary policy. And the President went through those this morning. What I would like to do is to focus on two of those for the balance of my remarks, forward guidance and innovations in central bank facilities. And I would note just on forward guidance, I don't have time to go into this, but it has been part, it's obviously a policy tool, but it's been part of much more, much broader transformations in the communication strategies of both central banks. It's a tool to influence short-term interest rates once the policy rate approaches or hits the effective lower bound. And the objective of both central banks has been to clarify our reaction functions in a highly uncertain world. Now, I should stop here and say, obviously in a perfect world, guidance would be redundant. People would know how a committee intends to set rates over the future and how those intentions would adjust to economic developments in all eventualities. In other words, people would see our reaction functions. But the world is complex. We all know that. And people, at least people outside of this audience don't have endless time to devote themselves to understanding monetary policy. I think we've gathered everybody in this room who focuses on these issues. In practice, guidance can be useful in providing people with information about how the committee, whether it's the MPC or the governing council, sets policy and over time improve understanding and how policy will adjust to news. And this can help avoid unwarranted volatility in interest rate expectations. And it can also limit the extent to which the central bank has to move the policy rate to meet the inflation target. And I would suggest that the ECB's experience with forward guidance provides a classic example. As mentioned this morning, first used in 2013. It's evolved over time. It was used to anchor policy expectations in the wake of the still fragile euro area recovery in the wake of the spillovers from the US taper tantrum. In subsequent episodes, the ECB guidance on interest rates have always been tied to the outlook for inflation with its time contingent nature becoming more specific. First with links to the duration of asset purchases and more recently to specific calendar dates. Just a couple points about the Bank of England's use of guidance, which goes in part to this divine coincidence point, if I may. We introduced guidance in 2013 at a time when the recovery was just beginning and we wanted to have some flexibility to learn about what we thought was a rapidly changing supply capacity of the economy. We had some sense that there was this positive labor supply shock, but we didn't have a good sense of what it was. And truth be told, we also had a sense that productivity was going to recover quite rapidly. That one we were subsequently disabused on. But the point was to learn about supply and provide guidance on the reaction function accordingly. And the reason is important is that up until that point, if you wanted to understand the reaction function of the MPC, various MPCs over its life, you would just have to know what happened to demand. Supply capacity taken is given and anytime there were periods of accelerating growth and firming business confidence measured by the PMIs, the MPC had always tightened policy significantly. And that's an illustration of the previous reaction function. If it had been followed, I know it looks quite fantastical, but that would have been the path of rates for the MPC if we weren't testing supply, if we weren't at least had a sense that pass was not prologue. Now, and that's why we tied guidance in a state contingent way to the unemployment rate as a proxy for supply. And I think the important thing in this was there was a learning about supply not just by us but by the market as well and an understanding of the reaction function. So as the economy, as the unemployment rate fell fairly rapidly, market expectations about the future path of policy remained subdued because there was a recognition that this positive supply shock was greater than either they or we had previously thought. In other words, they understood the conditionality of the guidance. Our second use of guidance was to provide guidance on the outlook for the equilibrium interest rate or R star. And we linked that to a phrase about limited and gradual interest rates when it came time to tighten policy. We started that about, well, about five and a half years ago, and it's now something that's very familiar. It's obvious now, but it wasn't then, and it certainly wasn't then to UK households and businesses, and that's when it mattered the most. And it was effective in anchoring, as you can see over the various time periods, rate expectations, including anchoring them when we began to raise interest rates in 2017. And last year. So the experience I'd suggest in both the euro area and the UK demonstrates how guidance can help manage expectations and circumstances change, how it's helped to dampen interest rate volatility and reduce the volatility of rates with the degree of economic uncertainty. And here's an illustration for the UK, which is another form of providing monetary stimulus. OK. I'll be a little quicker on my second topic, which is around liquidity and lending facilities, but I did think it merited just reinforcing some of the innovation there. Early on, this was about market functioning, and Jean-Claude is here and paid full credit to him and the other members of the governing council in July, August of 2007. The ECB acted with speed and force while others held back, actually with the exception, Steve of the Bank of Canada would have been the only other bank that acted in similar scale under David Dodge. And consistently innovated with term repo operations and helped lead, again Jean-Claude helped lead the network of central bank swaps that was put together between the SNB, the Bank of England, ECB, the Fed, the Bank of Canada and others, which have been an important part of the crucial part of the architecture at the time. Bank of England was not, as our initial response was not as comprehensive and part that reflected facilities that really had lagged market developments. We were not able to stabilize the overnight rate nor provide the support the banking system needed. Led by the example of the ECB and others, there was rapid innovation and a full credit to Charlie Bean and my other predecessors at the bank for the innovation that they put in place. We've now formalized those innovations following something called the Winters Review, and we have recently, and I just want to mention this in this setting, as part of our contingency planning for Brexit, we have activated the EuroSwap line with the ECB, which backstops financial institutions. This is crucially underpinned by our open and transparent communication and widespread and deep supervisory cooperation, and it is a testament to the commitment of central banks, the commitment of the ECB, the Bank of England, to maintaining the stability of the system to the benefit of all our citizens. I'll finish up by just making the point, which is crucially, of course, liquidity facilities, or the facilities, central bank facilities, not just about firefighting, not just about addressing market dysfunction, but also a way to provide stimulus. The ECB's experience with the three-year Teltro, that helped the Bank of England innovate with the Funding for Lending Scheme. We built on that experience with something called the term funding scheme in August 2016, and I'll draw a parallel to the Teltros of the ECB in 2014 and subsequent variants. In these cases, effective ways of lowering the effective lower bound, and it's maintaining margins, or maintaining the ability of the core of the banking system to pass on the stimulus of lower rates, and I note the President's comments this morning in that regard. I'll finish up where I started. The last 10 years have seen a number of innovations in the conduct of monetary policy. I've only focused on two, but in these, as in so many other respects, Europe has a rich past, and it's in part, because of that, that past in this case, the innovation of the ECB, that it has the possibility of a brighter future. But I am not the future, I am the past, and to move to the challenges faced by central banks today, I'm going to hand over to Stan Fisher. Thank you very much. Well, the ECB is getting us used to negative interest rates by showing us negative amounts of time just there on the board, so I'd better get going. I'm going to talk about three topics. One is the concern now evident in the United States about the failure of inflation to rise to 2% and what to do about it. The second is to ask what's going to happen at the FOMC meeting that is happening today and tomorrow, on which I have no inside knowledge whatsoever. And thirdly, I want to talk briefly about central bank independence. So the interest rate, the U.S. has a monetary policy, well-declared, of seeking to keep inflation at 2% and asking for full employment. And those things, the full employment one is not, it doesn't have a number attached to it in the agreement when the statement by the Fed, setting out these goals which are consistent with the law, but were in fact chosen by the Fed in 2011. The problem that has arisen is that the inflation rate has not risen to 2% since then for any length of time and that expectations of inflation are below 2%, 1.8, 1.7, 1.6, rates like that and people are getting very worried about whether the failure of interest rates will themselves be part of the reason why the interest rate doesn't, sorry, the failure of expectations of inflation don't rise to 2%, it will be one of the reasons why 2% looks out of reach. Now what is it that's prevented the interest rate, the inflation rate rising to 2%? The main explanation is that secular stagnation is the problem. This is Larry Summers' main argument and it is that the real interest rate has fallen substantially and that is undoubtedly true as Olivier argued last night. Now the main argument for what has come out about how to deal with this is to raise the target inflation rate to 4%. I want to address Olivier's address of last night by saying first of all that I agree with a great majority of what we heard particularly on fiscal policy. It is stunning that it is still very difficult for the major countries to undertake counter-cyclical fiscal policies and I think we need to actually consider what on earth is going on there that makes it so difficult. The only thing with which I disagree with Olivier is I don't believe it is wise at this stage to say that the target inflation rate should become 4%. For one reason this is a big change in the background of what's going on in the economy. An economy running with a 4% inflation rate is very different with an economy running with a 2% inflation rate. I know that because in the revision of the Bank of Israel law which took place in 2011 the inflation target was set as between 1% and 3%. That was done with a wide range not because the central bank was incapable of hitting the inflation rate hitting the target interest rate but because in a small open economy the more important number in determining the inflation rate is actually the exchange rate. More important than the interest rate and it bounces the inflation rate around. My concern about going to a 4% inflation rate is there are a lot of phenomena associated with the level of the inflation rate. One of them is the amount of indexation in the economy. The experience I had as governor dealing with this 1% to 3% target and most of the time was around 2% was very simple. 2% no noise from anybody. 2.3% noise from people who were writing columns and given how many business papers there are in Israel it's very difficult to find something new to say about anything. So there will be an article saying something about everything all the time and those guys would start writing whether it was we shouldn't go down and we shouldn't go up. But by 2.7% 2.8% the leaders of the unions came to see me and our discussion was very simple. If you can't stop that we're going to ask for indexation. Well I was in Israel when they managed to get rid of indexation in the 1980s and early 1990s. It is not a happy situation to run monetary policy in an indexed economy despite the fact that it all looks so simple. It's not so simple. Dynamics change when you're indexed. The dynamics of inflation change. And what I recommend I have enormous respect for Olivier and if he's reached that conclusion it's a conclusion we must take seriously. But we should take it seriously after setting up a panel or a group or something to seriously ask what are the full consequences of changing the inflation rate from the target rate from 2% to 4%. And if we reach the conclusion that the changes which maybe to some extent the reverse of what happened as we got rid of indexation. If we come up with a conclusion that all the problems that will arise are less costly than doing with low inflation rates below the target level then maybe make the change. Second issue, the US economy. Well it's doing reasonably well. You wouldn't know that to listen to the President of the United States. The interest rate is 2.25 thereabouts and he wants it reduced by a small amount namely 1%. We would do much better he says if we did that. Well we would in one respect. I'm sure that that would in fact increase employment. It would destroy the independence of the Fed which I'll come to in a moment. And it is not something which should be done. Now I want to say that Jay Powell actually knows the law of the central bank. The law of the central bank is that the government is not allowed to give instructions to the central bank on policy. They can intervene to say the central bank is getting too big whatever it is like that but they cannot give policy instructions. My favorite story on this is from Paul Volcker who said he was only once suggested to him by the government what he should do with the interest rate. He said in 1983 which if you can do the arithmetic is a number divisible by four that he was called in 1983 one year before the year of the election. And he was called to the White House. He said he was surprised that he was asked to go to the White House library because he was usually asked to go to the President's office. But that wasn't what happened. So he went in. He knocked on the door. The door was opened. Inside were President Reagan according to Volcker looking very uncomfortable. And James Baker the person who many of us had lost seen shaking hands with the Deputy Prime Minister of Iraq. He went in they said hello. Reagan he said looked uncomfortable. He repeated that a few times. Baker pulled out a piece of paper from his pocket and read it to him. The President of the United States orders you not to raise the interest rate before the elections. He said he knew that was an illegal act and he didn't know what to do. And what he did was to walk out of the room without saying a word. That took a lot of guts. And that was what he did. And the law was with him so it was okay. I'll come in a few minutes to talk about Central Bank independence in greater detail because having the law with you at a particular moment of time is not sufficient to be a fully independent central back. And I'll explain that in a moment. Turning to the FOMC meeting at the present the markets have somehow got it in their head that it is obvious that there will be three cuts in the interest rate one after the other in the meetings to come. And they're not absolutely certain if this is the first of those meetings or the first one will be a month from now on the very last two days of July. Where does this come from? It comes from the fact that inflation has been falling and that to some extent the employment numbers particularly for either April or May I'm not sure which they were. They were very low, much below the average and the average is pretty high. The average would have produced continued declines in unemployment. The 75,000 number that appeared in whichever month it was is not enough to maintain the rate of employment and would have resulted in a decline in the employment rate. Taking into account that what actually happens depends also on the participation rate of labor. But that belief is in the markets now. Now that I'm in the markets at least I know the guys who are in the markets and I listened to their phone calls and their credit and the conference calls. They change their minds with remarkable speed and they change them for long periods based on short term results which I find surprising but they do it. And I think if anybody ever said what you see in the markets is herd behaviour I would think on the basis of what I've seen that while it's not the whole herd running at one time it is very quick to shift its equilibrium. So we'll see what happens. The people I know do not believe this is going to happen at this rate and I'm not talking about people in the Fed. I wouldn't ask them, they wouldn't tell me and so what happens will be whatever it is with the fact that the Fed is not subject or should not be subject to orders by the President of the United States. I'd like to talk a little bit about central bank independence. The Fed is an independent central bank in what sense, in the sense that I specified a moment ago, the government cannot give orders on monetary policy actions to the Fed or the chair of the FOMC who happens to be the chair of the Federal Reserve Board. And until very recently presidents understood that this was a thing to be very careful about. Lyndon Johnson was said to have chewed out the chairman of the Fed on occasions and he used his bulk and his big fingers to great effect because there are pictures of him putting his fingers more or less in the eye of the chairman of the Fed. So there was that sort of threat but it has never taken the form it is taking at this time. And this is serious for a simple reason, not what happens right now although it is serious because of what happens right now. Namely, nobody knows how to get the president's views into their expectations of what's going to happen. It becomes much more important in the fact that the chairman of the Fed is nominated for only a four-year term. That's what Jay Powell has and the next nomination if the president wins the election will be by the president. And that could produce a very different monetary policy. And when that happens there will be a lot of questions to ask. People in this room will be interested as to whether the liquidity loans that were made in the last financial crisis will be made in the future. There is no legal basis other than that the Fed's got to do whatever it can to secure its loans. There is no legal basis saying that's a permanent feature of the environment. It's something the Fed did. It looked all right at the time. It was done again in the last crisis. Whether it would happen given the general view of this government is not at all clear. I hope it will be done. I don't know if it will. Final concern, I'm now at minus six so far the number is about minus six. You should know how far we can go into negative territory. The lender of last resort function was reduced by the Congress in Dodd-Frank law. The Fed has less freedom now to make lender of last resort loans than it had before. I find this very bothersome. Some of the people I know in the Fed say well when the crisis comes the government won't have the guts not to provide the money that we request. Great statement but this government has had the guts to do a lot of things that a lot of governments haven't done before. Introducing that level of uncertainty into the handling of a financial crisis is not a good idea but it is likely to be what happens. So I don't know where the dynamics of all this goes but I conclude with a story about Professor Robert Solo who told me over a lunch one day after the end of it. You know Stan this was at the beginning of the Trump administration. He said you know you're interested, you're worried about a set of things about which I'm also worried. I don't like the fact that they pulled out of the climate agreement. I don't like the fact that they pulled out of the Asian trade agreement. I don't like and he went on with a variety of things that I'd said. He said I have only one concern that if he is re-elected we will have become a third world country. Hard to believe but in terms of the way the government is being run it is something worth putting in with a positive probability. I don't know what that probability is but nor does anyone else. Thank you. Thank you Stan for those very pertinent and I would say timely remarks. To remain in the present for a little bit President Draghi you made some remarks this morning and it was noticeable that you were rather gloomy on the present set of economic circumstances that we see. It would be nice I think if you could elaborate on those a little bit and maybe deal with this concern, this nagging suspicion that a lot of people have that no matter what the situation is the ECB maybe likes the firepower to really deal with it. Thank you. First of all let me thank Mark and Stan for their comments and Mark for his kind words. The business cycle has been continuously softening and output growth with it all throughout the 2018, most of 2018, most of last year and continues to do so now. There was a gradual acknowledgement about the factors that have caused this slowdown. First, 2017 was an exceptional year and so the first reaction was well we are going back to normal. Then there were some so-called temporary factors mostly in the car industry in Germany, chemical industry, pharmaceutical industry, several, but they were all rather one of factors and the reaction was oh these are temporary and next quarter will rebound. Well rebound was there but much less than expected. The temporary was a little longer than expected and still it's going, it's softening. Now the third cause is actually the uncertainty that the rise in protectionism and the language has been used to question the basis of the multilateral order in which we live since the Second World War, to question the institutions that have so far supervised and cared about our international relations and the exchanges are being put into question. So all this lingering uncertainty has been continuing now for several months. Now we have seen several macroeconomic projections during this period of time and from time to time like we did in March we've acted but we always kept the risk tilted to the downside in spite of the action that we had taken because of this lingering uncertainty. In other words what's happening is that this is not any longer a risk but the very fact that this uncertainty is so protracted and continued to be there by itself is a materialisation of such a risk. So that's what we see. The second thing we see but we still see some strong data. We have a strong labour market, employment continues to increase. As I've said on and on and on now we are at 11 million jobs created over six years. It's never happened before in this part of the world. Even more than in the United States over this stretch of time. We have actually a nominal wage growth which is substantially above historical average. It's depending on how you read it, it's between 2.6 and 3% on average. Which means in certain countries the core countries is higher than that. But first of all in spite of that the pass through it's not there. I mean it just goes very slowly and core inflation remains by and large muted. And so we have these survey indicators that continue to point downward. Now here there is a certain disconnect between the current data which as I said they're not bad. Although the weakening is clearly visible, the survey data and the market based expectations. And so our inflation path is converging now more slowly than before. And this is based, we look at a variety of inflation expectations indicators. By the way some of these market based inflation expectations indicators have lost some information content due to technical conditions that have been affecting those markets especially of recent time. But looking at a broad variety of indicators we see actually that the path of inflation is converging to our aim more slowly than expected. So given that this is the situation, that's why during the speech today I said that the governing council stands ready to act. And now since you asked I'm coming back to my speech and just give the key focal points of the policy message. First of all the trigger that would basically suggest action is not any longer as actually I myself have said in the last press conferences. If something like if adverse contingencies were to materialize then we would stand ready to act. But rather in the absence of improvement such that the sustained rate of inflation to our aim is threatened additional stimulus will be required. And this is exactly because of this lingering uncertainty that that by itself is a materialization of risk. Second there was a reaffirmation of symmetry given the difficulty of clarifying this concept I want to be absolutely crystal clear that our aim is symmetric. And third there is a sentence which is I think it's important that said we remain able to enhance our forward guidance by adjusting its bias as we've done in the past. But also its conditionality to account for variations in the adjustment path of inflation. And all this the sentence here applies to all the instruments of our monetary policy stance. So it does apply to further cuts for the possible cuts in interest rates where again there is a change here because it says further cuts in policy interest rates and mitigating measures to contain any side effect side effects remain part of our tools. In other words we basically this we view the implementation of mitigating measures as part and parcel of a possible rate cut. And finally there is a sentence about the headroom. And we have as far as the asset purchase program is concerned with respect to the existing volumes but also the sentence about the limits. And it says the APP still has a considerable headroom. Moreover the treaty requires that our actions are both necessary and proportionate to fulfill our mandate and achieve our objective. Which implies that the limits we establish on our tools are specific to the contingencies we face. If the crisis has shown anything it is that we will use all the flexibility within our mandate to fulfill our mandate. So these are the key points of the policy message that I gave this morning. Thank you. And while you and others were speaking this morning others were tweeting notably the US president. Would you care to respond to the sense that some of the actions that you're considering are taking are unfair and that you will be engaging in currency war type behavior by acting? Look, we have our remit, we have our mandate. Our mandate is price stability defined as a rate of inflation which is close but below 2% over the medium term. I just said a moment ago that we are ready to use all the instruments that are necessary to fulfill with this mandate. And we don't target the exchange rate. Thank you. Over the past 20 years we've seen the euro's use as an international currency rise and yet the sense is that the dollar continues to dominate as the global reserve currency of choice. 20 years from now do you think we'll have a situation where the euro and perhaps other currencies too are as influential as the dollar is today? There has been a lot of talk and diverging views about whether the euro should have an international role as an objective. And therefore even in the early stages of the euro actually discussion was much more at that time where there was a part saying we should promote and enhance the international role of the euro. And another saying no because our monetary policy is unavoidably going to be affected by this larger international role of the euro. We can do, no matter what's the view there, it's doubtful that you can actually actively pursue policies that would make the euro internationally more important. But rather one should ask why is the euro less important than the US dollar? And the reasons are pretty obvious. We don't have a banking union finished. We don't have a capital market union. We don't have a safe asset, common safe asset completely riskless where the world can invest its money. I think if we do this the euro would become naturally important as the US dollar. And would any of the other panellists care to respond? I mean what is your view does the political situation in the US today risk weakening the dollar's dominance at all? Can you see other currencies the euro included making more headway in terms of their global use? Well I think we should have mentioned the Chinese currency as something that 20 years from now could be competing with the dollar. It's certainly a goal of the Chinese government and typically when they set out to achieve something they do that well at least in this era. I don't have anything very much to add to what Mario said. He said it all so beautifully and so clearly that I don't see much more. I don't think that the United States will make a positive effort to fight whatever the policies on the euro are. Unless they improve the balance of payments of the European Monetary Union countries. Connie? Well just quickly these things go on for longer than they quote should. There's huge network effects being the reserve currency. We're still in a world where 50% plus of global trade is invoist in the dollar, 70% of reserves are in the dollar. Depending on how you count it roughly the same proportion of the world's currencies are either directly tied or shadow the dollar and that is self-reinforcing. Yet the US is 15% plus or so of PPP global growth. That asymmetry between its importance in the system and its relative real weight is causing bigger and bigger strains in the global monetary system. But it isn't in and of itself self-correcting and I guess my comments would be A it's going to go on for longer than you'd expect first point. Secondly that as exactly as Stan said the internationalization of the renminbi will be as important for an eventual adjustment. But very much as Mario just said that these goods are goods in and of themselves at common safe asset banking union and a capital markets union. They happen also to be a prerequisite to be in the top tier of global reserve currencies. Last point is that in general this is shifted with relative economic weight and the question is that the added layer of complexity that comes with this is whether changes in technology in the nature of the system itself will either accelerate or broaden, create the ability actually to have multiple reserve currencies which has always been talked about. But in actual fact extremely difficult to have because it tends to switch to one or another. And when we asked people on Twitter to put forth questions to the panellists one of the issues that came up a lot was. One came up from the president actually. I think that was more ad hoc but one of the issues that did come up a lot was that of digital currencies of central bank digital currencies. But also digital currencies in general today we've seen the launch of the Facebook digital currency the Libra. So would you be able to offer us your thoughts on that development? Well a couple of comments first let's put it in context which is that there is a I don't think it's an overstatement to say there's a revolution going on in payments. It's very unequal though in some jurisdictions you can have real time bank to bank instantaneous and very low cost payments and in others not including many advanced economies. It's still extremely expensive to send money across borders and a lot of people are unbanked effectively because of that. So that needs to change and the technology is there to change and so it's into that context that something like Libra comes. And so I think we need to have an open mind about its its potential utility first point. Second point is that anything that works in this world will become instantly systemic and will have to be subject to the highest standards of regulation. So that's of operational resilience including cyber. It's of anti money laundering counterterrorist financing protections. It would include something being effectively an open platform so that others can join and it's seamless. Data privacy would be required and then as central banks we have to look at how the systems evolving to ensure that we can continue to deliver what people expect. They may not be able to quantify but they know when it's not there monetary and financial stability and so you would expect that. Well I mean it's clear that this development we will look at it very closely and in a coordinated fashion at the level of the G7 the BIS the FSB and the IMF and so open mind but not open door highest standards. And the other topic that came up a lot was the issue of climate change and how central banks will consider that in the monetary policy and financial stability remit too. It's that. Now this I'm drifting into the future here but that's that's OK. It's not going to affect. OK. Thursday but no. It's a number of us here. Klaus Nott Francois and others were part of our institutions. Part of the network for greening the financial system ECB as well. Fifty percent of global GDP and emissions and you know the key legs of this are first and foremost first information getting the right disclosure. You now have and I'll spare the detail but the punchline is almost 120 trillion 110 trillion euros of assets. I'll put in euros of assets that has signed up looking for this disclosure so the users of capital have to start providing it. The TCFD disclosure. But then the issue is is it's not just about static carbon footprint. It's about the strategy and strategic resilience and it's looking at risk management over time because the issue with climate as pertains not to the reinsurance sector or the insurance sector but to the core of the financial sector. The risks are around the transition. The risk and opportunities around the transition towards a low carbon economy or if you're in the case of the UK and soon to be I suspect other major advanced economies a net zero carbon economy and that is going to be the responsibility of financial institutions to have thought through how that adjustment is going to take place where their exposure is where their opportunity is. And and as a consequence of that it is very much top of mind for for central banks and supervisors. I'd like to throw open now to questions from the audience. Can we have some please. First question should we take three at a time. First thank you. I want to go back to the issue which was made by Stan Fisher about central bank independence. Well we we had 25 years ago a conference at Nellans Bank about a framework for modern disability where you were also included about central bank independence. We were at that time convinced that central bank independence was here to stay. Actually we are now confronted with the rise of populism in the US in the UK and also in Europe. I'm my great concern although I'm a proponent of central bank independence I worked on that for 25 years. My great concern is that we perhaps are entering an era of fiscal dominance and monetary accommodation in sergeant Wallace terms. Maybe the period of central bank independence of monetary dominance was maybe an exceptional period in history of 25 or 30 years. I hope not but if so what should we do about it. What should central banks do about it in terms of communication policy. Should we communicate better with the public at large or should we maybe go also accommodate to these wishes of these populist politicians. I hope not but my question to the panel members all panel members is how should we deal with populism in the future. OK. So Brian Short can we just bear in mind as well when questions are being asked that the governor of the bank is in the period so no questions directly on monetary policy please. Olivier. Thanks I feel I have to answer Stan. I think he has raised a very important issue which is that if there was a level of target inflation which led to the indexation of wages. Can you speak up. Well Mike is about as close to my mouth as it can be. Next I swallow it. So I fully agree with Stan that if level of average inflation or target inflation was such that it led to the indexation of wages this would be a major setback for my policy. It would have us go back from the current Phillips curve to an acceleration this Phillips curve and it's clear that my policy is much harder to do in that context. So I fully agree. So the question is what would trigger it. Stan may remember that my PhD thesis that he was the advisor to was on the indexation of wages. And so then I basically looked at what was happening in the US and I'm sorry but I don't remember the exact numbers but my impression is that indexation actually disappeared in the US at levels of inflation higher than 2 percent. It's an empirical issue as to what level would actually trigger it. And I fully agree that if it convinced me that that 3 percent or 4 percent by the way I didn't mention 4 percent yesterday but I've mentioned it in the past. It would actually be a serious issue. So I fully agree that that should be taken into account. OK. Ben Friedman from Harvard. I wonder whether central banks are not getting caught in a kind of path dependence. We all know that path dependence is a form of you can't get there from here. Or the past dictates the usual presumption usual example is the keyboard on the typewriter. It had had the kind of keyboard we have now had a purpose at one point. It's now counterproductive at least in the United States. There's now a great deal of discussion having to do with the sense that we're skating very close to the thin ice of getting stuck repeatedly at the effective lower bound of interest rates. There's an enormous amount of discussion of what to do about that but it's all couched in terms that we have to leave the 2 percent inflation target where it is. Now why do we have to leave it where it is because that's the answer is because that's where it is. It's a form of path dependence. We made a decision at one point and at one point it made sense I suppose. And now because that's where we are that's where we have to remain. I think central banks are especially subject to this kind of path dependence because central banks rely as all three of our speakers just mentioned on their credibility. And if you believe that your effectiveness depends on your credibility then of course it's very risky to you to decide that you're going to change what you're doing. But at the same time it's very important to remember that circumstances in the world change. Real interest rate levels in equilibrium are not necessarily what they used to be. You learn things that you didn't know before about the costs of getting stuck at the lower bound. And in the context of a meeting like this in which we're looking back over the 20 years of success I would call it an enormous success of the euro. It's important to realize that the conditions that prevailed more than 20 years ago that led to the decisions made then are not necessarily the conditions that prevail today. And therefore the decisions made today need not be gathered guided by the conditions that were prevailing a quarter of a century ago. And I wonder whether anybody has a reaction to the notion that central banks because of this important role of credibility are more so than other institutions locked into this kind of path dependence in which because decision was the right decision 25 years ago it therefore by presumption has to be continued regardless of whether objective conditions that gave rise to it still prevail. Ben I don't accept that there's a mindless path dependence. We have finally established in the industrialized and developed world what a stable currency is. It's this currency which has 2 percent inflation. We also have got considerable belief in the and what the central banks are trying to do although it's being eaten away and may end up being eaten away entirely by the failure of the inflation rate to get to the target level. But on the day we move to 4 percent we have changed what the inflation rate is in monetary policy. It is no longer the variable which we are trying to hit all the time. It is something that when it's inconvenient will change. Now you can say that's very sensible but it is not that simple to change the unit of account and that's what's being asked of us. So I think this is a much more serious issue than the people who say well 2 percent wasn't the best number 4 percent is. I thought at the time it should have been a range but not a range that went from 2 to 4 percent and that may yet be right. But I'm very the path dependence is a result of the belief that when people get used to something as fundamental as money and its stability is what is regarded as a stable currency that we will be making a major change. In the economy if we decide one morning to go from 2 to 4 percent because it's all very easy to do. I make two what I view before I make them as relatively safe points on this these questions safe from my blackout perspective. The first is that one of the ways to retain credibility and legitimacy is not to change your own remit. Your remit is given to you by in the case of the ECB by the Constitution in the case of the Bank of England by legislation and defined more precisely defined by the Chancellor in an annual remit letter. So yes there is you know there can be a place in an academic sense to talk about some of these issues but what you don't do is stand up and say well actually I'm tired of focusing on this I'm going to focus on that first point. Second point I'm going to make three. The second point is one just point to remind and I think people know this but it bears repeating the Bank of England has a very wide range of responsibilities including huge responsibilities in terms of macro prudential and micro prudential insurance and other responsibilities come and therefore other issues come in. And you know one of the challenges is explaining for example when I answer your climate question I'm answering from a macro prudential perspective not from a monetary perspective and you can appreciate that. But my third point and I'll stop on this which is around legitimacy and embedded in one of the first questions the first question was around communications and well issues of what can we do to reinforce the operational independence. Remembering as you well know the remit comes from others and we execute against it. One of the issues we think and there's a variety of reasons why this is the case one of the reasons one of the issues we have had and we're trying to address is that the Bank of England doesn't bear that much of a resemblance to the country it serves. In terms of the diversity of the senior management of the Bank of England and the diversity of background as well. And with all due respect to those on the panel and in the audience I mean I reminded Christine's regards comment that she has diversity at the IMF you know 100 plus nationalities they all have PhDs from MIT. So not necessarily diversity of thought so very quickly one of the things we've done is we're almost at the point now where we've doubled the number of women in senior management over the last six years recruiting we only take half of our intake from economics and finance just to have different perspectives and we're gradually moving to a more diverse outcome which institution so that and that does help when you go out and talk away from specialist audiences people more likely to be reflected and of course because all decisions in finance are taken under uncertainty it does also help to have some different perspectives around the table when you're taking those decisions. I'd like to comment I completely agree with them so I was thinking about commenting about communication and populism which was your question. First on two aspects actually one is the channel of communication and the other one is the audience who's the receiver of this communication. In the eurozone by and large communication is based on in the various countries is based on the National Central Bank carrying forward the message of the of the governing council. And I think Volcker villain this morning was was recalling what the boondest bank is done recently trying to explain some controversial issues like the target to and silly that's been that's been very well done now whenever the National Central Bank has supported the message that was coming from the governing council. You could see actually value added and the national constituencies the various people in the various countries approved understood trusted the governing council in Frankfurt. Whenever this didn't happen you saw the opposite. In fact they actually stirred populism and populist feelings against the ECB. So that's one word about the channel of communication. So if there is which which boils down to say that if there is discipline that would be the best response to populism because that's the best way to spread clearly. The message and content of the governing council's deliberations. The second point is about who's the receiver of this communication central bank communication. Now one thing's been said in the last few years, especially recently, but in the last two or three years is that central bankers should evolve their language. The natural audience of central banks are banks and markets and policymakers of course other policymakers. Now to to sort of make yourself clear speak like normal people communicate to use simple words don't use technical jargon all this is fine in theory. I think all in all it should be done people should think central bankers should think about this is one word of caution here. The limit the borderline between central banks and politics is also drawn by language. Once you stop talking naturally to your talking to your natural audience your natural constituency and you venture into a different audience and using a different language you naturally enter into the political sphere. And I could give you several examples of perfectly technical statements that formulated in common language become political statements. So I don't want to make specific examples because they don't involve the ECB but that's something to be kept present in mind. Claire could I just add one thing? Absolutely. Sylvester there is quantitative work on Y2% and we should make the argument also in terms of what we know about different rates of inflation and not say make an argument as if well that number was drawn from the hat. Let's see if there's a nicer number in another hat and we've got to get down to what is actually being argued about. My question has to do with market reaction to the messages we sent. Mario's content this morning was if not in the wording at least in the spirit quite similar to the message sent in our last government council meeting in Vilnius but markets reacted in a completely different way. I mean the exchange rate appreciated in Vilnius it depreciated today. We had a huge falling yields this morning and in my view President Trump's reaction was not from the content of the speech but from the market reaction. Why do you think that markets react in this way? I would like to return to the issue of central bank independence. I think this morning Ricardo Reis made a very important observation is that a big danger for central banks is to get close to fiscal policy and redistribution and the whole stuff. Now since the crisis a number of central banks have been given responsibilities for bank supervision. It's a good idea on one hand because there is competence, there is independence. On the other side supervision has natural fiscal implications. So my question to the panel is this a good thing or should that be a transitory thing after the crisis and eventually shouldn't central bank relinquish this responsibility. Isabel Matosilago from BlackRock. President Draghi this morning you made a very strong plea for a central fiscal stabilization capacity. This coming just days after the Eurogroup seemed to have buried it and ceremoniously. So a couple of questions related to that one is could you spell out what in your view would be the implications of this central fiscal capacity remaining elusive not happening. The implications for the Eurozone and for the ECB's ability to achieve its mandate. And then secondly how hopeful are you realistically that such a central fiscal capacity will see the light of day in the next few years. Let's say thank you. Maybe I'll pick up Charles's question on supervision linked to Ben's point on path dependence. I think in regulatory constructs there is path dependence. I mean different jurisdictions have different histories and experiences and adjustments to it. I will say my experience at the Bank of England so with that caveat my experience at the Bank of England of having supervision within the same body as monetary policy is there are huge, huge synergies between the two. And maybe it's particularly in this period of time but there have been issues around the transmission of monetary policy at these very low interest rates. And during periods of financial innovation as in my remarks things around facility design I don't think we would have designed the TFS as effectively as we did if we were not also couldn't have a direct dialogue with our supervisors of the banks. And then the third point quickly on my diversity point actually you can get complementary individuals into your organization. You can move them around. You can keep them there longer because they have diversity of experience. I mean these are very practical things but they actually really matter. And you know the fiscal where the rubber hits the road on fiscal isn't supervision I know it leads rates in resolution. It's in that point where you go to resolution. Now the Bank of England happens to be the resolution authority as well so I would have pointed that question around that. So I come from a jurisdiction where they've always been separate and I think they'll always remain separate in Canada's monetary and supervision. But because they're like that there is a closer dialogue whereas when in the UK and I'll stop on this when they were separate they were really separate and that really undermines the effectiveness of the system. Well the Bank of England was happy when supervision was taken away from it. Some at the Bank of England. I wouldn't generalize that because it was. It seems to me that when the summers the head of the organization. The head of the organization Eddie George was not happy about that. Not at all. Not at all. Anyway it happened. I would say that the same individual although he was no longer not the head was very happy indeed when it was returned to the Bank of England in the crisis. And so they've learned their lesson. Expensive lesson. It was indeed an expensive lesson. The final word to the president. I am just an answer to two questions. The first is from Yanis. Number one we don't target exchange rates. Keep this in mind. Second the. I mean I'm not. It's very difficult to actually. To assess to and explain market reactions to to our statements. They depend on many on several factors but certainly. Our experience all throughout you know the statements we've made many. And they many of them had some consequence. It also depends on how clearly this message is being perceived. Very often messages like for instance the one in the last press conference was quite complex articulated. So maybe people need more time to filter it through. So that's I think it's said before the markets changed their mind very frequently and very suddenly. Well they also may need more time to to get the message through or maybe the message was articulated in a poor way to begin with. So but that's that's what that's what happens now. The second question was about about the about the central fiscal capacity that is is not actually pursued with great determination by the policymakers. What first monetary policy will continue to do its job. No matter whether what what happens to fiscal policy in this part of the world. I've given several examples today of the of the drawings the shortcomings of not having a central fiscal capacity. The the fact is that monetary policy will continue to do this. But if there were some some fiscal capacity in place of some consequence it could do the same job faster and we less side effects. Think about financial stability. Think about the exchange rate. Think about lots of things if you had a powerful fiscal policy next to you. Of course there shouldn't be any fiscal dependence and because that would destroy monetary policy so we would in a sense backtracking from our objective. But but we know what difference it could make. Now do we need a completely fully fledged out fiscal instrument where different member states. By the way this appeal this plea for for for fiscal capacity or fiscal instrument was the was originally put forward by Jean-Claude Trichet when he pleaded for having a minister of finance for the eurozone. And that's what. So we need to we need to have a fully fledged fiscal instrument. No it's clearly very complex. It's it's like building an institution how what should be its governance and so on. What is needed at this stage is a clear goalpost. It's a political statement that in a certain number of years the eurozone members will converge and agree in having a common fiscal capacity. Just the very fact of having this goalpost shared by member countries would make an enormous difference. Thank you. Thanks a lot. We give a round of applause to the panelists please. Thank you.