The role of central banks in the G20

Since its inception in 1999, the Group of Twenty (G20) has dedicated itself to addressing the challenges facing the international monetary and financial system in an increasingly closely interconnected global economy. These challenges include, for example, strengthening the international financial architecture, managing financial crises, ensuring the crisis resilience of financial sectors and developing strategies for sustainable economic growth.

Managing crises

The G20 was founded as a forum for regular meetings between the finance ministers and central bank governors of the leading industrialised countries and emerging market economies. Its objective is to improve the dialogue between the member countries on important questions concerning the international monetary and financial system. Central banks were explicitly involved as they play a key role through their country’s membership of the International Monetary Fund (IMF) and in monetary policy.

The G20 was established, with its inaugural meeting in Berlin, as a reaction to the Asian crisis and a series of other financial and monetary crises in various emerging market economies. These crises exposed unsound developments in these countries in various fields of economic, monetary and financial policy, including the management of cross-border capital flows and questions relating to monetary reserves, exchange rate regimes and borrowing in foreign currency.

In the years that followed, too, the G20 focused on strengthening the international financial architecture and managing or preventing financial crises. Finance ministers and central bank governors have been, and continue to be, the key experts and decision-makers in this. Among its achievements to date, the G20 has provided significant impetus for the reform of financial market regulation, such as larger capital buffers for banks. National and international institutions and committees are gradually implementing the reform measures recommended at the G20 summits.

Enhancing financial architecture

Another key topic to be addressed by the G20 is the international monetary and financial system and the international financial architecture. This includes the ongoing development and reform of the relevant institutions, with a special focus on the IMF. This, in turn, concerns key questions such as the funding and governance of the IMF as well as the design of its financial assistance instruments and the conditions under which assistance is granted. These questions are of great significance for the Bundesbank, as it shoulders the financing obligations from Germany’s membership of the IMF.

Central banks also play a key role on the Financial Stability Board (FSB), which was set up by the G20 heads of state or government in 2009 in the wake of the financial crisis. It is the central body at the global level for coordinating efforts to regulate the financial system. The FSB is located at the Bank for International Settlements (BIS). To date, central banks have always provided the chairpersons of both institutions.

Bundesbank a member in its own right

As Germany’s central bank, the Bundesbank is a member of the G20 in its own right, alongside the Federal Government. The Bundesbank’s president, and one other member of the Executive Board as the president’s deputy, participate in the regular meetings of finance ministers and central bank governors or their deputies. These meetings serve as preparation for the monetary and financial topics of the annual G20 summit attended by heads of state or government. The most visible result of a G20 summit and the meetings of finance ministers and central bank governors is the communiqué. It includes an assessment of the current situation as well as an action plan for the G20’s ongoing work.