Navigating economic challenges: reflections on 45 years of policymaking

Speech by Mr Agustín Carstens, General Manager, Bank for International Settlements, at the 24th BIS Annual Conference, Basel, 27 June 2025.

Dear colleagues

Let me firstly thank the members of the last panel – Tim, Roberto, Jacob, Adam and, of course, Andréa – for their kind words. Compliments are always welcome, but those from such eminent colleagues and good friends are especially meaningful.

Let me also thank the other speakers and discussants today. You have given us much food for thought. My central bank colleagues and I truly value the opportunity this conference provides to have a frank and open dialogue with distinguished thinkers about issues that lie at the intersection of research and contemporary policy debates. You have not disappointed us.

As you are now aware, my term as BIS General Manager comes to a close at the end of this month. As this is one of the last times I will have the chance to address an audience like you in this capacity, I thought I might take the liberty of sharing a few personal reflections on my 45-year career, as well as some thoughts on issues that I believe will warrant the attention of academics and policymakers in the years to come.

I started my central banking career on the foreign exchange desk at the Bank of Mexico in 1980. Central banking was a different game in those days. None of us had heard of big data, artificial intelligence or digital currencies. Even personal computers were rarely seen. In the trading room, most of our business was done via telephone and Telex.

Policy frameworks were less advanced as well. In Mexico, we operated a fixed exchange rate system. It had functioned with a degree of success for a couple of decades. But over time, multiple macroeconomic imbalances had built up. In 1982, less than two years after I joined the central bank, our international reserves ran out and events came to a head. We had to abandon our exchange rate peg and experienced a fiscal, banking and exchange rate crisis. The banking system was nationalised and strict exchange controls were imposed.

The crisis came at a particularly unfortunate time for me. I had just been accepted into the PhD programme at the University of Chicago, on a scholarship provided by the Bank of Mexico. But with our foreign exchange reserves exhausted and the imposition of strict foreign exchange controls, it seemed likely that my scholarship would be put on hold. This would have forced me to postpone my studies, perhaps indefinitely.

I caught a lucky break, however. My boss in the trading room, understanding the situation, managed to scrape together USD 10,000 in cash. That money helped me through my first year in the United States. After that, the Bank of Mexico was in a sound enough financial position to meet the rest of my scholarship.

Events like this leave a mark. I thought to myself: "this macroeconomic madness has to stop". And it became my mission in life. This sparked a common thread through much of my subsequent career – to devise appropriate policy frameworks to help countries avoid the type of economic and financial calamities that Mexico experienced in 1982 and again in 1994.

For the first decades of my career, I focused attention on Mexico. After finishing my PhD, I returned to the Bank of Mexico and worked in teams seeking to reform key aspects of central banking and macroeconomic policy: establishing a more flexible exchange rate regime, eliminating exchange rate controls, creating a domestic debt market, privatising the banking system, negotiating our external debt and drafting the law that granted autonomy to the central bank. After the 1994 crisis, I helped to devise the Bank of Mexico's inflation targeting framework, which remains in place today, and to modernise our payments system.

After 2000, I ventured out of the protective walls of the Bank of Mexico, doing stints at the IMF and Mexico's Finance Ministry, where I served as Undersecretary and then, from 2006 to 2010, as Minister. Mexico's Finance Ministry has a very broad mandate, encompassing taxation, government spending, debt management, customs and most of the financial regulatory responsibilities. Needless to say, involvement with politics is unavoidable. Going from the Bank of Mexico to the Finance Ministry was like going from playing golf to playing rugby.

But my transit through the Ministry of Finance was extremely enlightening, especially having spent the formative years of my working life at the central bank. I soon realised that fiscal and monetary policies are tied at the hip, and that it is a real challenge to, at least, prevent them from acting at cross purposes. It is essential to find a way to coordinate, even if the central bank is autonomous. Autonomy does not mean isolation. But, because formal coordination is almost impossible, it is necessary to craft it at a working level.

In 2010, I returned to the Bank of Mexico as Governor. To address the issue of coordination between fiscal and monetary policies, it was extremely useful for me to have sat on both sides of the table and understand both points of view. As we say in Mexico, "no es lo mismo ser borracho que cantinero" which translated means roughly "it is not the same to be the customer as the bartender". To build bridges is essential.

In addition to my efforts to strengthen coordination between the left and the right arm of macro policy during my years as a top policymaker in the fiscal and monetary domains in Mexico, I strove to:

• instil in society the value of preserving macro-financial stability, making clear that it is not worthwhile to risk it for short-term, ephemeral gains.
• strengthen institutions, in particular the autonomous central bank; and
• rely on markets, as they will typically provide the most efficient and unbiased evaluation on how you are doing.

Looking back at the past 45 years, I must express a degree of satisfaction with how macroeconomic and financial management has progressed.

There have been many bumps along the way. But if I compare the ability of emerging market economies – and even advanced economies – to navigate the significant economic challenges of recent years – the Great Financial Crisis, the Covid-19 pandemic, the subsequent inflation surge, the recent periodic bouts of financial market volatility – with their performance during the period of similar economic shocks in the 1970s and early 1980s, one can only conclude that we have moved significantly forwards.

Our frameworks are better. Our understanding and management of risks is better. Our ability to manage business cycles is better. Our ability to adapt to new challenges and changing circumstances is better.

These improvements took hard work, and constant vigilance. So we should not be complacent. There will always be new challenges. But at least, by and large, we are not making the old mistakes.

After close to eight years as Governor of the Bank of Mexico, I have had the immense privilege to broaden my scope as General Manager of the BIS, where I have been able to contribute further to the broad pursuit of monetary and financial stability.

My tenure as BIS General Manager has coincided with many bouts of economic stress.

At the start of my term, the main task for many central banks was to find a way to lift inflation back up to target and to escape from the effective lower bound on interest rates. This seemed a great challenge at the time. In retrospect, it was probably the calmest part of my tenure!

In 2020, the Covid pandemic struck. Economies were placed into suspended animation and a prolonged recession, if not a depression, accompanied by even lower inflation, seemed inevitable.

But economies bounced back remarkably quickly, due in part to enormous monetary and fiscal stimulus. Instead of deflation, we experienced the largest global inflation since the 1970s.

A range of new policy questions emerged. These included: the need to better understand the behaviour of aggregate supply, particularly in a world of finely tuned global value chains; the dynamics of inflation and the drivers of inflation expectations.

The inflation surge illustrated powerfully the need to ensure consistency between monetary and fiscal policy, and for each policy arm to adequately take account of the others' behaviour. And it reinforced the urgent need for structural reforms to boost potential growth and enhance the flexibility of aggregate supply.

For a short while it seemed inflation might become entrenched. But central banks had learned the lessons of the 1970s. They tightened policy sharply and promptly and brought inflation down at remarkably little cost to economic activity. Higher interest rates, in conjunction with very high public debt levels, did, however, contribute in some instances to periods of financial instability.

By early 2025, the global economy looked set for a soft landing. However, the significant shifts in US trade policy announced in April have called that into question. It remains to be see how these developments will play out.

In short, it has been a wild ride. But I look back with much satisfaction at our work at the BIS to analyse these issues to help central banks interpret them and devise appropriate policy responses. I remember early in the Covid pandemic I spoke on the phone to the Governor of one of our Board members and asked, "How can we help?". He told me "we are busy fighting fires; we need someone to help us with the analysis". I think that the BIS delivered.

Alongside macroeconomic volatility, the ongoing march of financial technology has been the other major theme of my tenure as General Manager. I have long been convinced of the need for central banks to pay closer attention to these issues. They pose great risks – with the increasing heft of so-called stablecoins in the financial system being a key one. More importantly, however, technology gives us the opportunity to construct a more efficient, secure and accessible financial system, for the benefit of society as a whole.

I am particularly satisfied, therefore, with the BIS's work to articulate a vision for a modern financial system. It is a vision based on the application of modern technologies – including tokenised central bank money, tokenised commercial bank deposits and a broader ecosystem of tokenised assets – alongside a robust and secure regulatory and governance framework underpinned by the singleness of money and settlement finality on the balance sheet of a trusted public institution – the central bank.

Looking back on my whole career, I am proud to have played my role – however small – in making the global monetary and financial system more robust and secure.

At the same time, I am conscious that all successful careers rest, at least to some degree, on luck. I was lucky that my first boss was resourceful and considerate enough to find the funds to support my initial studies in Chicago. On numerous occasions since then, I have been lucky enough to be at the right place, at the right time and with the right people.

I readily acknowledge that I have not done it all on my own. The abilities of a policymaker are a function of their education, their experience and the people they work with. I was fortunate enough to go to amazing universities, in both Mexico and the United States, and to have had the opportunity to work on significant financial and monetary realignments during my early years at the Bank of Mexico. Most importantly, I have had the chance at the Bank of Mexico, at the Mexican Finance Ministry, at the IMF and at the BIS to work with incredible colleagues who have constantly pushed me to think harder and more deeply about the policy challenges we face.

In closing, I would like to share some brief thoughts on six issues that I think represent significant challenges in the coming years and that I trust that you, as policymakers and researchers, will find ways to address.

First, as a result of fragmented politics, limited fiscal space and low potential growth, central bank autonomy could be under attack. Defending it is crucial. But it is unclear how best to do so. At a minimum, central banks should do their utmost to fulfil their mandates, earning legitimacy through success. But the policies required to keep inflation low are not always popular. It will be crucial to preserve society's support for there to be an institution within the state tasked with preserving the value of money.

Second, and relatedly, we need to prevent the de-institutionalisation of money. By that I mean the belief in the efficiency and legitimacy of privately issued money – whether it be unbacked cryptocurrencies or so-called stablecoins – as a substitute for money issued by central or commercial banks. Researchers, of course, can lay out the many shortcomings of crypto and stablecoins. But, as I have argued many times before, it is incumbent upon public authorities to hasten the development of institutionally sound and technologically advanced alternatives to meet society's justifiable demand for a more modern monetary and financial system.

The third issue relates to growing fiscal imbalances. In too many countries, public debt is too high and fiscal space is too small. This makes it harder for central banks to do their job properly and feeds vulnerabilities in financial markets. It will be important in the coming years for fiscal authorities to improve this situation. Central banks, meanwhile, should make it clear that they cannot be the antidote to the consequences of fiscal imbalances.

Fourth, risks to financial stability must be controlled. Public authorities need to be more proactive. They need to be on constant lookout for new and emerging risks. They need to understand much better the behaviour of financial markets and the links between them. Above all, they must improve their monitoring capacity. Suptech and regtech must keep pace with the increasing sophistication of the financial system.

Achieving this brings me to my fifth point, the need to invest in technology. Artificial intelligence, big data and other advances are changing the way economies and financial markets operate. Public authorities must understand these technologies and incorporate them into their own operations. There is a sense that we are falling behind.

Sixth, and finally, we need to keep international cooperation and collaboration alive. Relatedly, we need to strengthen global safety nets and make sure they remain fit for purpose. These are public goods, and we all need to play our part.

So, there is much to do. I will be cheering for you from the stands. I wish you all the best in these endeavours.