As emerging countries prepare to deal with the fallout of monetary stimulus tapering, central bankers seem to be divided on whether the withdrawal of easy money regime could create instability in the global economy.
Sharing their views during a session on monetary at the World Economic Forum (WEF) here today, central bankers and experts felt that risks to the world economy could be worsened by the unwinding of the "post-crisis monetary stimulus".
To bolster sagging economic growth, many developed nations including the US, the UK and Japan have come up with some kind of stimulus measures. However, easy money regime in the developed world have also impacted capital flows into emerging markets, including India and Brazil.
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Talking about its unconventional monetary policy approach, Bank of Japan Governor Haruhiko Kuroda said his country started it only nine months ago.
"We are only halfway... There is a long way to go. For Japan, it is premature to talk in concrete terms about how to normalise monetary policy," he said.
While the US has announced that it would start reducing its monthly bond purchase target by USD 10 billion to USD 75 billion, Japan is likely to continue its stimulus steps. The UK is undecided on whether to continue with such measures.
Reflecting an uneasy mood over stimulus withdrawal plans of developed countries, Central Bank of Brazil Governor Alexandre Tombini said there is lack of co-ordination in the the unwinding of exceptionally supportive monetary policy.
"This exit is unsynchronised... You see the US and the UK ahead, but in Japan and Europe you don't see synchronicity," Tombini said.
UK's Chancellor of the Exchequer George Osborne said the main external risk is still faced by the very weak economies on the European continent.
"The big challenge this year is what can we do to alleviate pretty desperate situations in some of those euro zone economies. The levels of unemployment and youth unemployment in some of our neighbours are a tragedy," Osborne added.
Harvard University's Professor Lawrence H Summers expressed concerns about "macro-prudential complacency" and cited that governments have never successfully forecast a recession a year in advance.
"I worry about how well macro-prudential regulation can really work, though it is an attempt worth taking," he added.
Kuroda said the US Federal Reserve has managed normalisation very well.
"Tapering has not disrupted the market at all. We are careful and we will manage the normalisation process without creating a balance sheet problem," he said.
US Treasury Secretary Jacob Lew said that American economy would have a good year in 2014 on the back of strong core growth, rising confidence and an end to the fiscal drag.
According to him, the US financial system was stronger now than it was in 2008. However, he acknowledged that more work remains to be done, particularly on the shadow banking system and cross-border resolution processes for global institutions.
