Christine Lagarde: Central banks in a fragmenting world

Speech by Ms Christine Lagarde, President of the European Central Bank, at the Council on Foreign Relations' C Peter McColough Series on International Economics, New York City, 17 April 2023. 

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

It is a pleasure to be here in New York.

The global economy has been undergoing a period of transformative change. Following the pandemic, Russia's unjustified war against Ukraine, the weaponisation of energy, the sudden acceleration of inflation, as well as a growing rivalry between the United States and China, the tectonic plates of geopolitics are shifting faster.

We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.

All this could have far-reaching implications across many domains of policymaking. And today in my remarks, I would like to explore what the implications might be for central banks.

In short, we could see two profound effects on the policy environment for central banks: first, we may see more instability as global supply elasticity wanes; and second, we could see more multipolarity as geopolitical tensions continue to mount.