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Euromoney 30th anniversary: Paul Volcker interview – A creaky system

Paul Volcker, chairman of the US Federal Reserve Board from 1979 to 1987, chairman of Wolfensohn & Co from 1988 to 1996, now 71, looks back over 30 years at a world banking system which "lurched from one crisis to another" from the late 1970s to the early 1990s, and a global financial system which is "still pretty creaky". He fears for small, vulnerable countries, which are like rowboats in an ocean of volatility. He talked to David Shirreff.

Euromoney 30th anniversary: Heroes and villains

What were the turning points?

It was a big turning point when the dollar moved off gold (1971), then the oil crisis (1973), then the US attack on inflation (in the early 1980s), which became a worldwide obsession. The oil crisis was probably inevitable. But it was affected by uncertainty about currency values. There was the second oil crisis at the end of the 1970s, then the US led the world in an attack on worldwide inflation.

Didn't the battle on inflation precipitate the 1982 debt crisis? High interest rates aggravated the debt crisis and may have precipitated it at that time, but it would have happened sooner or later. These countries had overborrowed.


Who were the heroes of that particular hour? Who would you add to Paul Volcker, Jacques de Larosière [IMF chairman] and Bill Rhodes [Citibank's chief debt negotiator]? Fritz Leutwiler [president] at the BIS and Gordon Richardson [Bank of England governor] had an instinctive understanding of the problem.


What about Walter Wriston [Citibank chairman]?
Wriston helped by assigning Bill Rhodes to the problem. In the case of one country I urged him to put Rhodes back in when he assigned the negotiations to somebody else.


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