Nout Wellink expects higher interest rates and inflation: "We are stuffed with monetary ammunition material."

In this episode, Paul Buitink talks to Nout Wellink, president of the Dutch Central Bank (DNB) between 1997 and 2011, former chairman of the Basel Committee on Banking Supervision (BCBS) and former member of the board of directors of Chinese banks Bank of China and ICBC.

Wellink discusses the concept of inflation and what a correct inflation target should be. He believes that the fear of deflation is unjustified and that current objectives are too broad. Low inflation was less the result of central bank policy and more the result of opening up the world market, especially Asia. The extra money the ECB created built up inflationary potential. We have stuffed ourselves with monetary ammunition material, according to Wellink. Supply problems also cause inflation, but then you have to tighten as a central bank. Wellink analyses the usefulness and legal legitimacy of the various buy-back programmes. He expects higher inflation in the near future as a result of demography, deglobalisation and climate measures. Interest rates will remain high for a long time. Still, he has more faith in central banks than financial markets because of wrong incentives. However, the ECB should be concerned about the outcome of lawsuits before the German Constitutional Court.

The gentlemen also talk about the large losses at central banks as a result of monetary tightening and how to deal with this. Gold and China are also discussed and the increasing 'mission creep' at central banks, such as climate policy, while the focus should be on price stability. Wellink also reflects on the guilder and whether it has been exchanged cheaply for the euro and finally discusses a Plan B for the euro.