LONDON (Reuters) - Emerging market countries need to expand their currency crisis fighting toolkits and be ready to embrace the kind of money printing tactics used in the U.S., Europe and Japan, the head of the Bank for International Settlements (BIS) was due to say on Thursday.
Agustín Carstens, who leads the influential central bank umbrella group, was due to say poorer countries’ vulnerability to FX volatility was now being compounded by the large stocks of internationally-mobile money chasing their higher interest rates.
He was due to say that while countries had been more active in recent years in FX intervention and introduced other ways of combating the swings, it was likely that overall more would be needed.
“Going forward, emerging market economy (EME) central banks will need to further develop their toolbox for dealing with the challenges of exchange rate and capital flow gyrations,” Carstens was due to say in a speech at the London School of Economics.
As part of it, the EM central banks may need to consider using asset purchases or asset swaps similar in nature to those used by the likes of the U.S. Federal Reserve, ECB and other parts of Europe and in Japan over the last decade.
“EME central banks need to incorporate sufficient flexibility and sufficiently long horizons in the interpretation of their price stability mandates,” Carstens was also due to say, according to a text of his speech.
“That way, the longer-run risks to price stability posed by exchange rate-driven financial imbalances could be incorporated into the decision-making process, and short-term policy activism be avoided.”
He was due to warn too of so-called beggar-thy-neighbour exchange rate policies where countries try to push down their currencies to aid trade competitiveness.
“This charge bites hard, especially in the current political economy climate,” the former head of Mexico’s central bank was due to say.
“I have no easy answer here, except to say that this is a problem that besets some advanced economies as well as emerging market economies.”
(Reuters inadvertently issued this story ahead of the scheduled 1730 GMT release time.)
Reporting by Marc Jones