Instability in the world's monetary system could trigger isolationism and destroy trust between major powers unless dealt with soon, Canada's central bank chief warned Friday.
"The number-one threat, from my perch, is the functioning of the international monetary and financial system," Bank of Canada Governor Mark Carney told a security conference in Halifax.
"The international monetary system has become an increasingly unstable hybrid system. It's a mixture of fixed and floating currencies that is beginning to foster not just disinflationary or deflationary risks in some advanced countries, but inflationary risks in emerging markets," he said.
Carney said the threat is not imminent and steps are being taken to try to avoid a total breakdown of the monetary system.
But he warned, "It does have the potential to decrease interdependence, to pull nations apart, to decrease trust between major powers at a particularly difficult time, as we're moving to a more multi-polar economic world."
Carney said more trust in each country's respective financial systems as well as an "international architecture which has elements of peer review, common values, and perhaps a treaty-based element to it" is required.
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