One of the world's most powerful banking authorities has warned that its members have done what they can to prop-up economies, and that it is time for governments to take decisive action.

In its latest annual report, the Bank for International Settlements says the world's central bankers have bought time for governments by printing money and slashing interest rates.

But it warns that these extreme stimulus measures cannot fix the world's underlying economic problems, and may actually be exacerbating them.

The Bank for International Settlements is the central bank for central banks, and has its finger on the pulse of the global financial system.

Bank of America Merrill Lynch Australia chief economist Saul Eslake says the BIS has a track record of delivering trustworthy advice.

"That's partly because it isn't sanitised by contact with respective governments," he said.

The BIS was perhaps the only global financial institution that did foresee the global financial crisis before it actually happened.

"They gave prescient warnings about the possible risks associated with the very rapid growth of credit in major advanced economies in the middle years of the past decade," Mr Eslake said.

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Not only did the BIS sound alarms about the risk of a financial crisis occurring, its central bank members arguably did more than any other institutions to stop the so-called Great Recession turning into another Great Depression.

But the bank's general manager Jaime Caruana says there is little left for central banks to do.

"Monetary policy has done its part. Recovery now calls for a different policy mix - with more emphasis on strengthening economic flexibility and dynamism and stabilising public finances," he said in a speech at the launch of the report in Basel, Switzerland.

Saul Eslake says this a blunt call to action for the world's governments.

"To get on with both fiscal consolidation, that is, increasing taxes or reducing government spending, with a view to returning budgets to surplus and ultimately reducing public debt," he said.

"And, to get on with productivity enhancing structural reforms."

Mr Eslake says Australia is not referred to specifically in the report, but there are general warnings that apply here.

"The BIS identifies that small, open economies could be more exposed to sudden changes in economic circumstances globally, as a result of the pursuit of policies of quantitative easing and ultra low interest rates by central banks in major advanced economies," he said.

"And indeed, the sharp fall we've seen in the value of the Australian dollar since the US Federal Reserve flagged that it might begin to unwind its unorthodox monetary policies or perhaps a reminder of that."

And Australia is likely to see more of that volatility if central banks take the Bank for International Settlements' advice.

Jaime Caruana warned that current central bank policies are effectively encouraging more financial bad behaviour by making debt so cheap for governments, businesses and individuals.

"Extending monetary stimulus is taking the pressure off those who need to act," he said.

"Ultra-low interest rates encourage the build-up of even more debt. In fact, despite some household deleveraging in some countries, total debt, private and public, has generally increased as a share of GDP since 2007."

Mr Eslake says some central banks already seem to be singing from the same song book.

"We've seen last week that the US Federal Reserve is foreshadowing a gradual unwinding of these unorthodox monetary policies," he said.

"We've also seen this past week the People's Bank of China take what appears to be actions to draw to an end what's been a period of unusually easy access to cheap money by parts of the Chinese banking system."

However, Japan appears to be on a different trajectory.

"There's no indication that the Bank of Japan is likely to step away from the expanded quantitative easing policies that they've only recently embarked upon," Mr Eslake said.

With Australian interest rates still among the highest in the developed economies, virtually no one is expecting the Reserve Bank to shift towards higher rates this year.