Exchange rates, capital flows and the financial cycle: the origins of the BIS view
by Barry Eichengreen
There is no official Bank for International Settlements view of feasible and desirable exchange rate and international monetary arrangements, so far as can be gleaned from documents and publications of the institution. Butit is possible to discern the outlines of an unofficial, unstated institutional consensus. Its most prominent elements are the proposition that lax credit conditions create incentives for risk taking that can threaten systemic stability; that the instruments and institutions that convey capital flows across borders are important for understanding financial-stability risks; and that there is a role for macro-prudential policy in restraining the excesses that heighten these risks.
In this project I will trace the events, personalities and institutional dynamics responsible for the development of this view. I will do so through the lens of the Bank’s Annual Reports, which provide a distillation of the thinking of staff and management. I will see characterize the evolution of those analyses, focusing on the post-Bretton Woods period that saw the emergence of the modern BIS and is most directly relevant to today. I plan on supplementing my discussion with material from the BIS archives and secondary sources.
