Monday, January 11, 2010

G20 Central Banks Are Worried With Bubbles Caused by The US Dollar Policy

The central bankers from the G20 and representatives of institutions such as International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) are concerned about the risk of bubbles in emerging countries emerging, as well as with the excessive optimism in financial markets.

The warnings were raised at a meeting of the Financial Stability Forum (FSB) on Saturday in Basel, and were addressed again yesterday by monetary authorities in a meeting at Bank for International Settlements (BIS). For the president of Bank of Italy and of the FSB, Mario Draghi, the abundant flow of capital toward emerging economies and the appreciation of its assets "could create speculative bubbles." The threat is largely due to the excessive optimism of the market, which seems to assess that the improvement of international economic situation is better than it actually was. "The situation is much better than a year ago," he said. "But there are still many substantial weaknesses that prevail in the system, despite the growth stimulated by the vast monetary and fiscal package."

At night, the president of an emerging nation's CB reiterated: "The concern is not just with bubbles in emerging economies, but in general, because of U.S. monetary policy of very low interest rates and high liquidity," he said. "The potential bubbles are not generated in other countries, but through the high liquidity of the dollar."

The concern relates to the timing with which the Federal Reserve will be tighten its monetary policy.

With material from Agencia Estado.

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