The belief that financial markets were self-regulating has been shaken and indeed shattered by the crisis. Now there is a resurgent effort by policy-makers to reassert public responsibility for economic outcomes that protect and promote the public interest in financial stability, growth and price stability. The G20 leaders’ summits and meetings of finance ministers and central bank governors over the past five years have been at the forefront of this effort.

For a long time, price stability has been the predominant goal of central banks, and in many countries their only goal. Inflation-targeting grew in favour in many countries where central banks became exclusively focused on price stability as their mandate.

But the crisis has shown that the division of labour between central banks and finance ministries — the former tasked with financial goals and the latter preoccupied with the real economy of employment, income and output — is increasingly untenable. Although the principle of the independence of central banks from executive authorities has been honoured in most countries, central banks are custodians of the public interest and have been increasingly responsive to having a more balanced basket of goals.

Monetary policy has been at centre stage as the primary instrument for economic recovery and growth since 2010, after fiscal deficits had exhausted fiscal policy space. Inflationary pressures have receded from attention as financial stability as a public priority came to the fore for central banks, and for other regulatory authorities as well as for parliaments.

Financial stability is a more complex goal than price stability. It involves detecting the downside systemic risks that stem from macroeconomic imbalances, overextended private financial institutions and markets, weak regulatory structures, and the failure of safeguard and gate-keeping mechanisms to manage market volatility and exogenous shocks. In most countries, central banks have significant roles in this process — indeed, sometimes the most important role.

To be sure that systemic risk assessment is effective, all four of these elements of financial stability need to be monitored, analysed and reviewed for possible dangers and for action that might be needed to contain nascent threats. The capacity of national institutions to carry out an integrated assessment of internal systemic risk, as well as the capacity of international institutions to assess global systemic risk, may not be up to scratch, given the analytical complexity of these elements. The institutional arrangements that govern these four fields are different in every country and are fragmented in some, adding to the challenge.

But national governments and international institutions have made progress to address these challenges. Since the crucial London G20 Summit in April 2009, G20 governments have acted to strengthen their capacity to oversee, supervise and regulate their financial markets and institutions. They have led the international efforts of the IMF, the OECD and the Financial Stability Board (FSB) to catalyse and harmonise national financial reforms and to initiate and support global financial regulation and coordination. The first phase of this effort is now nearly done. Australia is pushing for completion of this first phase of financial reforms for the November G20 Summit in Brisbane.

As complex as this landscape may be, several things are clear. First, enlarging the mandate of central banks to extend their horizons to growth and financial stability is in the broad public interest. Secondly, strengthening national capacity to oversee, monitor and regulate financial markets and institutions is essential to protecting the public from financial shocks. Thirdly, systemic diversity among the major economies in the G20 brings to the fore a richer variety of institutional and policy experiences on which policy-makers can draw in their reform efforts to cope with new realities.

Finally, recent efforts by the major economies to address financial vulnerabilities and risks in their economies and in the global economy through the G20 and the international institutions (especially the IMF, the OECD and the FSB) mean that there is a broad range of policy tools available, especially compared with the pre-crisis situation, which was characterised by an undue faith in the self-regulatory nature of financial markets.

What is lacking still, despite these positive developments, is a narrative for the public that conveys the nature of these efforts over the last five years and connects the public to their stake in this evolving story. The G20 Brisbane Summit in November provides an opportunity to weave this narrative and tell this story, connecting G20 leaders to their publics in new and promising ways.

Colin Bradford is a non-resident senior fellow in the Global Economy and Development Program at the Brookings Institution, Washington DC.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘The G20 summit at five’.