ECB’s Villeroy Says Oil Price Spike Will Hurt If It Lasts

(Bloomberg) -- The jump in oil prices following the attack on Saudi Aramco’s giant Abqaiq plant risks raising inflation and damping growth, Bank of France Governor Francois Villeroy de Galhau said.

In a wide ranging speech in London that considered the risks presented by digital coins, climate change and Brexit, he said the world economy faces unsustainable levels of uncertainty, and that the loss of confidence needs to be addressed by politicians, not central bankers. The strike on Saudi Arabia, which knocked out roughly 5% of global oil supply, is just the latest example, he said.

“It is too early to rush to hasty conclusions; we should closely monitor the consequences on the oil market, which is characterized by a rather flexible supply and a subdued demand,” Villeroy said. “If it lasts, this latest oil shock could increase inflation and hamper growth.”

He also identified climate change as potentially creating upward price pressures and a slowdown in activity which risks generating a “long-term stagflationary shock.” Central banks need to research the economic effects and integrate them into their macroeconomic models and look at the credit risk.

Digital Currencies

Villeroy pledged that regulators will be keeping a “very close eye” on the development of so-called stable coins, like Facebook’s Libra. A French-led task-force, chaired by Benoit Coeure, will make its conclusions public and make recommendations in October. The emergence of Libra shouldn’t necessarily mean that authorities accelerate the move to a central bank digital currency, he said.

At the same time, such projects demonstrate gaps in existing cross-border payment systems. “Hence, at the European level, we should aim at promoting a genuine European strategy for retail payments,” as the existing market is too fragmented, he said.

On Brexit, Villeroy said it “is and remains bad news” for both the U.K. and Europe, although he hopes both sides will remain close partners. One outcome may be greater integration of Europe, he said.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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