François Villeroy de Galhau: Multipolarity and the role of the euro in the International Financial System

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Emerging Market Forum, Paris, 16 May 2022. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
16 May 2022

Ladies and Gentlemen,

It is a great pleasure to welcome you today in Banque de France premises for the 15th Emerging Markets Forum. "Navigating in a fast moving and turbulent world" certainly requires great skills, and recent developments in the International Financial System remind us that it is currently all but smooth sailing. We have seen disruption in the global value chains due to the still ongoing pandemic. International trade may slow down or even contract if these disruptions lead to a significant wave of re-shoring. Now the brutal war in Ukraine has induced further supply disruptions and led our democratic leaders to use financial sanctions in response. 

In this uncertain situation, our first duty as a central bank is to provide appropriate monetary policy. The consensus in our Governing Council is now clearly emerging, as summed up by Christine Lagarde in her speech last Wednesday : to fight an inflation which is not only higher but broader, we now have to normalise our monetary policy. I won't add my precise calendar prediction to the many existing ones, but expect a decisive June meeting, and an active summer. The pace of the further steps will take into account actual activity and inflation data with some optionality and gradualism, but we should at least move towards the neutral rate . And let me stress this: we will carefully monitor developments in the effective exchange rate, as a significant driver of imported inflation. A euro that is too weak would go against our price stability objective. 

More structurally, a key question is whether we are heading towards a fragmented International Financial System, at the expense of smooth trade and financial transactions? Despite the challenges, (I) we shouldn't abandon,  as a "creative frontier" on the horizon, the idea of cooperative multilateral International Financial System and (II) we should definitely develop the international role of the euro as a realistic step forward.