Central banks and the global debt overhang

Speech by Mr Hervé Hannoun, Deputy General Manager of the Bank for International Settlements, prepared for the 50th SEACEN Governors' Conference, Port Moresby, Papua New Guinea, 20 November 2014.

In my address, I will focus on what is a central global economic policy issue: debt has reached record levels in many countries and, seven years since the start of the global financial crisis, it is still rising. There is no hard and fast rule to tell exactly when debt is excessive, but I believe there are signs that debt is already well past safe levels in many advanced economies. Financial market participants remain largely complacent about this risk. But they are apt to change their minds abruptly.

With some exceptions, emerging market economies are in better shape than advanced economies, but they too are not immune to the risk of excessive debt. The pace of debt accumulation has indeed accelerated in emerging markets since the start of the crisis.

I will structure my intervention into three main parts:

I. First, I will discuss the build-up of the global debt overhang and its fundamental causes;

II. Second, I will deal with the various approaches for resolving the debt overhang;

III. Finally, I will turn to the dilemmas that central banks need to confront in dealing with the problem.