Intensified dialogue on financial stability between the People's Bank of China and the Deutsche Bundesbank
Today, the People’s Bank of China and the Deutsche Bundesbank organised a conference in Frankfurt am Main on topical issues of mutual interest concerning financial stability. Dr Yi Gang, Deputy Governor of the People’s Bank of China and Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, jointly addressed the conference. Both of them emphasised the importance of an open exchange of ideas and experience, in particular between advanced countries and emerging market economies and they underscored the shared intention of the People’s Bank of China and the Deutsche Bundesbank to strengthen their cooperation in the area of financial stability.
The Sino-German Financial Stability Forum is an important outcome of the Sino-German strategic partnership pushing forward. It is part of an agreement on an intensified dialogue on key policy areas reached by German Federal Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing last summer. The establishment of this mechanism has now been written into the Sino-German joint communiqué as a cooperative outcome of the first intergovernmental consultation in Berlin in June 2011.
During the conference, Dr Dombret and Dr Yi both mentioned that one of the key challenges in the area of financial stability was achieving an appropriate assignment of roles between monetary policy and macroprudential policy. Dr Dombret pointed out that “progress in macroprudential research and prevention-focused policy-making is crucial in order to ward off the danger of monetary policy being overburdened by events. A low interest rate regime can only be applied for a limited period of time to stabilise a financial crisis since it otherwise encourages excessive risk-taking.” He added: “When planning the exit from non-standard monetary policy measures, due account needs to be taken of the associated risks for the bond markets. This also means that such an exit places high demands on effective communication.” Dr Yi stressed that “in order to strengthen the macroprudential policies, great efforts should be made to reduce the pro-cyclicality of the financial system by smoothing the cyclical volatility of the economy and financial system.”
Dr Dombret pointed out that “Germany is a firm proponent of the free movement of capital, not least in the light of its own experience in the 1960s and early 1970s with capital controls aimed at averting speculative capital inflows, which proved ineffective. In the long term, the parallel opening up of product markets and financial markets has proved to be an enduring model of success.”
Dr Yi said that China, as an important economic and trade partner of the European Union, has confidence in the euro and the euro area. He emphasized that “a united, prosperous and strong Europe has a great role in global stability and development.” He continued: “We support all the measures adopted by the European Union, the European Central Bank and the International Monetary Fund to address the sovereign debt crisis. We are prepared to explore, together with the European Union, various ways of effective cooperation. As a responsible long-term investor, China will continue to play an active role in protecting the stability of the international financial market. We have always regarded Europe as an important investment destination.”