Remarks by Angel Gurría
11 September 2019 - Paris, France
(As prepared for delivery)
Governors, Deputy Governors, Ladies and Gentlemen,
I am delighted to open today’s seminar on international co-operation for long-term financial integration. I would like to thank the government of Japan for co-sponsoring this event under its G20 Presidency.
The OECD and Japan have had a very productive G20 partnership this year and capital flows are one of many areas where the OECD has been able to contribute. I am pleased to say that all members of the G20 are represented here today.
As we meet today we are faced with a very fragile economic outlook. Global growth has slowed, and the prospects for a rebound have weakened in recent months.
Deepening trade tensions have left global trade volumes stagnating and are increasing uncertainty. This is taking a toll on investment and weighing on sentiment in financial markets.
In part as a result of this, gross international capital flows are historically weak, at around 1% of GDP currently. This means that they are lower – in absolute (US dollar) terms, not just in relation to GDP – than they were pre-crisis. Among advanced economies, capital flows are even back to their mid-1990s levels.
The OECD Code of Liberalisation of Capital Movements has been helping us to tackle some of these challenges. It is the only multilateral agreement between states that guarantees openness, transparency and mutual accountability in capital flow policies.
For more than six decades, the Code has been used to promote international dialogue on capital mobility. The Code can therefore be considered a "global public good", acting as a conflict avoidance device.
We recently completed a thorough revision of the Code. The revised Code is better adapted to the current requirements of capital flow management of both advanced and emerging economies.
It also provides countries with the flexibility needed to respond to financial stability concerns linked to large capital inflows and outflows without diluting the high standards of openness that it promotes. Moreover, the revision gives the Code stronger governance and transparency, as well as a decision-making capacity, while also providing for closer cooperation with other international organisations.
Looking ahead, the Code will be important in helping us to assess numerous emerging policy challenges and developments in the current financial environment. Let me mention just a few.
The post-crisis period has seen a more diverse and uncoordinated use of various financial policies, including capital flow management measures. Such measures tend not only to increase fragmentation globally, but also give rise to cross-border externalities; for example, barriers in one country deflect capital to other countries. Importantly, the Code provides a platform for multilateral co-operation to discourage countries from adopting policies that may be harmful globally.
Another trend, in the opposite direction, is the gradual capital account opening of major emerging economies. The requests by Brazil, South Africa, and others to adhere to the Code are a clear sign that it provides a useful framework for countries’ efforts in that direction. I hope – and trust – that in the future a broader set of countries will be able to rely on the revised Code as they move towards greater capital account openness.
Another relevant issue is shifts in the make-up of our financial sectors. The post-financial crisis regulatory agenda has improved the resilience of the banking sector. There are signs, however, that risks may be shifting to non-bank actors, including shadow banks and institutional investors as well as the non-financial corporate sector, which has seen a boom in leverage in recent years. In the United States, for example, shadow banking is roughly the same size as the formal banking sector; and in the euro zone, it grew by almost 40% between 2012 and 2016. We need to carefully consider whether risks are building up in these unregulated corners of the financial sector.
Finally, looking forward, we need to ask how we can we take international co-operation on capital flows to the next level. I personally think that multilateral co-operation can still be deepened. In this respect, the participation here today of other relevant IOs, including the IMF, the BIS and the Financial Stability Board, is a step in the right direction.
Ladies and Gentlemen,
The Code has been guiding us for over 60 years; we are confident that the revised Code will continue to steer our efforts in removing barriers to the movement of capital, while helping us to tackle economic and financial instability.
Today’s discussions, as well as those that we hold regularly in the Advisory Task Force on the Codes, are crucial in helping us to find solutions and achieve consensus on some of the most pressing issues in the international financial architecture.
I encourage you to take an active part in the discussions today and to make the most of the great level of expertise we have assembled in the various panels. Thank you.