The “relative” stability enjoyed after the Cold War “could be giving way to one of permanent instability” that reduces economic growth, increases costs and adds uncertainty to international trade, warned on Monday the president of the European Central Bank (ECB), Christine Lagardein a conference at the Council on Foreign Relations.
Lagarde stated that the fragmentation of the world economy into opposing blocs is, paradoxically, a global phenomenon. He warned that geopolitical risks “inevitably lead” to higher inflation and less economic dynamism, as well as a contraction in trade. This is in contrast to the post-Cold War order, which allowed “the flourishing of international institutions, the expansion of trade, and central banks focusing on stabilizing inflation, adjusting demand without having to worry excessively about supply”.
Thus, it has been encouraged to dismantle this trend driven by the new geopolitical reality “strengthening and diversifying supply chains or saving energy” because it would create a “virtuous circle” that would reduce the volatility contained in inflation and would spur investment.
Lagarde also assured that completing the union of capital markets at the European level will be “critical” to find out if the euro will continue to be one of the main currencies in the world in the future, or if it will give way to the Chinese yuan or the Indian rupee, for example. In monetary policy, he defended the interest rate hikes undertaken by the ECB as “tools” because “they are starting to work”, although he also acknowledged that the statistical base effect, the fall in oil prices and less disruption to supply chains have played a role in containing inflation. Looking ahead to 2023, the expected price increase will be 5.3%. In this sense, he stated “that there is no reason to change the medium-term objective of 2%”. “Central banks must provide stability at a time when there is anything but stability”, he summarized.
The head of the European Central Bank has also made a call for cooperation between the United States and Europe in an effort to transcend the purely friendly definition and establish joint projects with a common objective, such as the location and exploitation of rare earths. Lagarde has defended that this cooperation is possible without protectionist measures, although she has not provided details on how it will take place.
In her speech, Lagarde has highlighted the interdependence between countries and stressed the importance of working together to achieve common goals. According to Lagarde, what happens in the United States and in Europe has a direct impact on the rest of the world, which makes cooperation essential to guarantee global well-being.
Regarding China, Lagarde highlighted the role that the Asian country can play in the international financial system by helping to restructure the debts of low-income and fragile countries.. In addition, he has affirmed that it is important to integrate China into the international financial system in order to avoid creating institutions that rival existing ones and further fragment the global economy.
In general, Lagarde has advocated for international cooperation and stressed the importance of working together to address global challenges. Her focus on cooperation and interdependence among countries reflects the need to seek joint solutions to achieve sustainable and equitable economic growth.
According to Lagarde, cryptocurrencies are not currencies and those that are presented as assets are actually rather liabilities.
He also stressed that cybersecurity is a relevant problem in the world of cryptocurrencies and that we should not grant them credibility or prestige that they do not deserve or demonstrate.. Despite this, he has respected the decision of people to create speculative instruments. as long as they are prepared to lose their investment. In relation to this, he has expressed his concern about the interest that cryptocurrencies arouse in young people who perhaps do not fully understand the scope of their investment.
Instead of cryptocurrencies, stressed the importance of the digital euro as a secure means of payment backed by the central bank that it will protect the privacy rights of citizens and that it will adapt to an increasingly digital society. In this sense, he argues that the digital euro could be a viable and safe alternative for those seeking to invest in the digital world.
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