The case for international monetary diplomacy

Good afternoon everyone

It will not surprise you that Nyenrode, and especially this beautiful coach house, is a popular location for weddings. So if you are using this venue on Valentine’s Day for something else, you better have a good reason. But I think we can say we have passed that test.

Apart from weddings, you can also organise company retreats here. And according to the Nyenrode website, among the many services on offer is, and I quote: ‘raising and lowering of the company flag’. That stuck in my mind. And I kept wondering, if Paul would have a company flag, what would it look like?

The DNB flag and the IMF flag are both logical candidates. During his long career, Paul switched back and forth a whopping six times between the central bank and the Fund. A remarkable example of revolving doors…

First the Fund. In a way, Paul’s work at the IMF went through the same phases as the organization itself. In the first decades after its establishment, the IMF was very much a monetary institution. In his initial period at the Fund Paul worked on the monetary cash reserve requirement, a very nuts-and-bolts monetary topic. Over time, the IMF developed into a global fire brigade, fighting financial and budgetary crises in member state. In those years, Paul was one of the firefighters as mission chief for numerous IMF missions in countries under pressure. And in recent years, as an Executive Director, he has been dealing with the effects of the Covid pandemic and climate change. To its credit, the IMF recognised the relevance of climate change for the world economy. It included sustainability in its mission, and initiated the board coalition on climate action. As Executive Director, Paul was a driving force behind this initiative.

I think one of the reasons he always returned to the Fund, is he really loved the intercultural part of it. He loved to travel. And he loved the diplomacy part of it.

During his years at the Fund, Paul developed his skills as an international monetary diplomat, in the tradition of the late Andre Szasz, the former board member of De Nederlandsche Bank. How should we characterise the Paul Hilbers approach to international monetary diplomacy? I think it has two elements. The first is always being very well informed. It is fun to travel with Paul because he always has interesting observations about other countries. And the second is ‘carrying on where others stop’, as I think Paul himself once phrased it. He would just continue to make his point, and keep an issue on the table, until progress could be made.

So the IMF flag is an obvious candidate. But what about the DNB flag? The central bank is after all where he started his career, and where he returned in 2009 as Divisional Director responsible for Supervisory Policy, after his second period at the Fund. He might have expected a quiet, analytical job. Instead, he was thrown into the midst of one of the biggest crises DNB had ever experienced. After the global financial crisis and especially the failure of DSB Bank, the central bank came under heavy political criticism, and it had to come up with an action plan for a ‘culture change’. That summer, Paul cancelled his holiday, and hammered out a document that appeased politicians and laid the groundwork for reforming financial supervision at the Bank.

During these years back at DNB, he also made an invaluable contribution to the Basel III standards, strengthening capital and liquidity requirements for banks across the globe. And he worked hard to contain the financial stability risks stemming from Brexit.

During this period Paul also became a professor at Nyenrode, a role that suited him well, working at the crossroads of science and policy. Being a mathematician, analytical rigour as a basis for policy has always been his trademark. And job applicants that he interviewed may recall that he was particularly interested in one thing: your maths grades in high school. So maybe the university should have just raised its own flag.

But never in his career did he have to call on his diplomatic skills as much as during his final years as a member of the Executive Board of the IMF. February 24, 2022, when Russia invaded Ukraine, was a watershed moment. Ukraine is one of the countries in Paul’s constituency at the IMF. From then on, Paul worked tirelessly to look after Ukraine’s interests, culminating in the historic IMF programme for that country. In that sense, the yellow and blue flag would also be a good fit.

And that brings us in the world of today. We are going through a period in which the achievements of post-war international economic and financial cooperation are increasingly under pressure. Geopolitical tensions are high, countries are protecting their strategic industries, they are imposing trade restrictions on each other, and they are finding it harder and harder to agree on matters of common interest  these days.

This is bad news for the world economy. And it is also affecting the functioning of the international financial rules-based order, of which the IMF and the World Bank are important pillars. This could prove costly. That’s because the most important challenges to financial stability that we currently face are precisely the cross-border issues that we can only solve if we work together.

This morning, at our meeting of the IMF constituency members, we talked at length about how to deal with this new situation. For central banks and the Bretton Woods institutions, the international political tensions are a fact of life. We cannot change that. But that doesn't mean we should sit still. International cooperation, which Paul has championed throughout his career, is now more important than ever.

Despite all the bad news, multilateralism is not dead. My personal experience as chair of the Financial Stability Board is that, despite the challenging international political situation, the commitment to keep working together on financial stability issues is still there.

And despite the political tensions, the IMF and the World Bank continue to function well. That is an achievement in itself, and gives hope for the future. I think the IMF and the World Bank have a crucial role to play in a world that is threatened by fragmentation. Because of their global membership and because of their mandate, they see the bigger picture. They are best positioned to keep some order in the world economy, and to warn against the global impact of trade wars and economic isolationism, especially on smaller countries. And to highlight the consequences of not acting on global challenges together, such as climate change. Given Paul’s expertise in the field, I am eager to hear his views on the role of the IMF and the World Bank in these challenging times.

What we need now is for governments, central banks and academia to continue to speak out for the international financial rules-based order that has brought us stability and prosperity over the decades. And to remain as engaged as possible in constructive international working relationships so that the international financial institutions can continue to function.

And last but not least, we need monetary diplomats who combine economic and diplomatic skills, and who can speak with authority. Paul is of that calibre, and we are going to miss him. Today we are saying goodbye to him. But we are not lowering his flag. It remains flying high. The flag of international monetary cooperation. The flag of economic reason and diplomatic perseverance. A flag that doesn’t exist in fysical reality, but one that we carry in our hearts and minds.