Global central banks could coordinate policies better: Draghi

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”.

The Brexit vote has sent financial markets into a tailspin and investors have been awaiting a response by major central banks.

“Monetary policy has inevitably created destabilizing spillovers as well, especially when business cycles have been less aligned”.

Many believe Draghi’s programme of negative interest rates and quantitative easing was created to weaken the euro in order to make exports cheaper and stimulate the economy.

ECB President Draghi in opening remarks to the ECB forum on central banking focussed on the worldwide dimension of global banking and policies, specifically the need for greater co-ordination across global central banks. But this is not so much a result of the measures central banks have employed, but rather of the intensity with which they have had to be used.

At the same time, central banks in the USA, United Kingdom and Japan have similarly tried to boost lending, corporate spending and investment.

Given the increased levels of integration within the global economy and increase in overall trade volumes, the spill-over effects from monetary policy actions were greater. Effectively, this meant a shared diagnosis of root causes of problems and a shared commitment to base domestic polices on that diagnosis.

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. “It is simply the new reality we face”.