Christine Lagarde, the managing director of the International Monetary Fund (IMF) on January 24 urged the government not to rely on central banks in the next financial crisis. Her remark was made while in a panel hosted by CNBC at the World Economic Forum in Davos, Switzerland.
Government’s Less Dependency on Central Banks Would be Nice
According to CNBC, Christine Lagarde is of the opinion that if countries did not have to rely on central banks in the next financial crises, then it would be nice. Financial institutions like the Bank of England, the Federal Reserve, and the European Central Bank (ECB) were specifically pointed out.
In Lagarde’s opinion, economies had to depend on these banks during the financial crisis in 2008. CNBC, on the other hand, noted that financial institutions at that time had launched stimulus packages. Some of these were low-interest rates and buying vast quantities of government bonds. The media outlet also said that these are packages that are meant to restore economies by boosting inflation and promoting corporate lending.
However, this dependency on banks should not be the case in the next crises especially when the global economy is growing rapidly, said Lagarde. This was attributed to the fact that if economies are relaxed that financial institutions will always be there to bail them out, critical reforms will not be carried out.
Government Need to Make the Right Decision With Fiscal Policies
IMF’s managing director further stated that the government needs to make the right decision in matters relating to fiscal policies. The same was said about reforms such as automation which some policymakers have begun, but have only brushed on the surface. Lagarde has therefore encouraged that these reforms be given a more serious approach.
Sergio Ermotti, UBS CEO also said countries needed to implement changes that will be beneficial to citizens. He added that;
I hope that we don’t rely on central banks to resolve the issues. I think some of them have very limited ammunition .. some others have a little bit more flexibility.
Managing Director Urges Central Banks to Adopt Digital Currency
BTCNN on November 18 reported that Christine Lagarde has urged central banks to consider issuing a virtual currency because money was facing a historic turning point. Here, she pointed out that there was less demand for physical cash in comparison to a digital currency. Therefore, a digital currency that is backed by the central bank could bring about efficiency, security, and payment privacy.