Central banks from the view point of law and economics

I just posted a while back on the importance of knowing law while understanding central banking. It isn’t just about economics alone as you need a proper legal framework under which central bank has to operate. The success of central banks as an institution isn’t about economics alone, is a success of law as well.

 

Masaaki Shirakawa, Governor of the Bank of Japan gives a super speech to Faculty of Law, Tokyo University on this issue. He says knowledge of law is as critical as knowledge of economics.

 

He discusses three aspects of law that influence central banking:

 

• Democracy and central bank independence: issues from the viewpoint of public law: Law grants independence to central banks which allows them to achieve their objectives properly.  
• Innovation in central banking business: issues from the viewpoint of private law: There were couple of innovations in this crisis. Like BoJ accepted foreign bonds as collateral. This has legal implications as which law would apply and how? There were innovations in payments and  settlement system that allowed the acceptance of foreign collateral
• Financial system stability and international legal issues: Financial system is global and failure of firms leads to international legal issues. The Lehman Bros collapse is a useful case study on the issues

Very useful insights. He also adds a few points on life as a central banker.

 

In the end he says:

 

All of you have been studying law and might be hoping to utilize law to contribute to the world. There are many jobs such as the legal profession and legal departments where knowledge of the law can be utilized. While all of those jobs are no doubt important, it would be more than I can dream of if you also recognize the challenging and unique workplace that is a central bank.

 

 

 

 

 

 

 

 

 

 

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