Mario Draghi pleads for central banks to work together and warns against currency wars
The president of the European Central Bank (ECB) wants institutions around the world to work together to raise inflation and has criticised those who try to instigate currency wars.
Mario Draghi told a forum in Lisbon this morning collaboration between regulators, governments and central banks was essential in the globalised world and could help deliver more effective management of the global economy.
"Divergent monetary policies among major central banks can create uncertainty," Draghi said. This "in turn leads to higher exchange rate volatility and risk premia [which] has to be countered with more expansionary monetary policy, increasing spillover effects."
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The ECB has just extended its €80bn (£66bn) a month quantitative easing programme to include the purchase of corporate bonds, sending borrowing costs for Eurozone companies and governments to record lows. At the same time, the United States has tentatively begun its cycle of tightening monetary policy, though that appears to be on hold in the aftermath of the UK's vote to leave the EU and the financial turmoil it sparked.
Many believe Draghi's programme of negative interest rates and quantitative easing was designed to weaken the euro in order to make exports cheaper and stimulate the economy. The Bank of Japan has similar concerns about a strong yen – something which has become exacerbated in recent weeks as investors have rushed in to the safe haven currency.
However, Draghi has always denied that his programme targeted the exchange rate, and today warned against a currency war.
"We also know that competitive devaluations are lose-lose for the global economy, since they lead only to greater market volatility, to which other central banks are then forced to react to defend their domestic mandates," he said.