Endgame for monetary policies

Global efforts needed to invest the liquidity generated by advanced economies in long-term productive assets

Much of the hype surrounding last month's meeting of the G20 finance ministers and central bankers in Moscow was dedicated to so-called currency wars. But the crucial issue of long-term investment financing was largely neglected, even though the endgame for the unconventional monetary policies introduced by some advanced economies will require the revitalization or creation of new long-term assets and liabilities in the global economy.

The collapse of Lehman Brothers in 2008 drove up risk premia and triggered panic in financial markets, weakened assets in the United States and elsewhere, and threatened to provoke a credit crunch. In order to avoid fire sales of assets, which would have led to the disorderly unraveling of private-sector balance sheets - possibly triggering a new Great Depression or even bringing down the eurozone - the central banks in the advanced countries began to purchase risky assets and to increase lending to financial institutions, thus expanding the money supply.