Archive for the ‘Central Banks / Monetary Policy’ Category

Central Bankers Gone Wild? A response from developed country central banker..

May 4, 2016

I had blogged about this article by Howard Davies saying central bankers have become too big for their own good.

Mojmír Hampl, Vice-Governor of the Czech National Bank responds to this criticism.

Sweeping criticisms of developed-country central banks have lately become all the rage. The main line of attack goes something like this: monetary policymakers have been far too activist since 2008, overstepping their mandates and damaging the economy. This narrative – which, bizarrely, is equally popular among otherwise irreconcilable ideological adversaries, such as libertarians and neo-Marxists – is patently wrong.

What the critics fail to understand is that modern central banks are responsible not just for fighting inflation, but for maintaining long-term price stability. Like a person’s body temperature, price levels can go neither too high nor too low without causing serious complications. Central banks must be as “activist” when combating deflation caused by weak demand as they are when fighting high inflation driven by excessively strong demand.

Though the battle is completely symmetric, the public assessment of it is bafflingly lopsided, especially in countries with financially conservative populations. This includes my own country, the Czech Republic, a nation of small savers where the loan-to-deposit ratio remains well below 100%. Czechs fear inflation, even though it hit a 13-year low last year and the Czech National Bank, of which I am Vice-Governor, has been fighting to avert the risk of deflation since 2013.

Another common complaint about developed-country central banks’ policies since 2008 is that they have redistributive effects. They certainly do, but so what? Any and all monetary-policy actions redistribute wealth. An interest-rate hike pleases savers, whereas a rate cut is a boon to borrowers. Importers prefer a strong exchange rate; exporters prefer a weak one. To make any sense at all, monetary policy must have different effects on different groups at different times. That is no mistake; it is the essence of monetary policy.

Some critics add that central banks are failing to hit their inflation targets anyway, so their activism is not only unwarranted, but also ineffective. Sometimes they even manage to fit these contradictory criticisms in the same sentence, as though they were accusing someone of firing blanks, but somehow leaving people dead and wounded.

The reality is that central banks in the developed world have – in a truly fascinating way – succeeded in maintaining price stability and the purchasing power of money during and after the global financial crisis. Had they not intervened, their economies would have faced catastrophic deflation, major asset-price slumps, and a complete meltdown of the financial and real sectors. Clearly, strong action was the right response to the crisis (the extent to which central banks might have contributed to its outbreak is another matter).

Each one to his own..

How central bankers have become too powerful for their own good?

April 29, 2016

Howard Davies points to an important problem facing the world – the power of central bankers. They have become way too powerful and important for not just their own good but everybody else’s as well:


Can crises be curbed? Hayek vs Keynes…

April 19, 2016

Today is a day of this versus this on ME blog. After Schumpeter vs Kirzner, here is another take on the more famous Hayek vs Keynes.

This one is by Norges Bank  Deputy Governor Jon Nicolaisen. As he is a central banker, what more to expect than whether one should intervene ot let markets work during a crisis:


Towards a theory of shadow money..

April 18, 2016

Those who think shadow money/banking is a new idea and came to the fore only in 2008 crisis, should know better.

Similar concerns arose when banks started offering deposits and one was not sure whether they should be counted as money or not. Over a period of time, deposits are not just counted as money but has become the most dominant form of money as well.  So will repos the new shadow banking instrument make the similar transition as well?

Daniela Gabor and Jakob Vestergaard of INET have a paper on the topic. A broad summary is here..


Do Harry Potter tales have lessons for central banking?

April 8, 2016

This blog pointed to this post linking Harry Porter to economics. It said Ministry of Magic was just antithetical to economic world where market exchange should allocate resources not some bureaucracy .

In a rebuttal on Mises Blog it says Potter world was not all that bad. It has some useful lessons for central bankers:


Why is currency in circulation in India rising?

April 4, 2016

There were flurry of articles towards end of India’s financial year on this murky term – currency in circulation. All these articles (article one , two and three)were looking at possible reasons for sharp rise of currency in circulation.

The question is why should anyone care? Well, one sees this circulation rising in times of high inflation as people need more money to settle transactions. But with declining inflation, one should not see a rise in the currency numbers.

First what is this Currency in circulation? This is basically all the paper notes we carry in our pockets. This along with rupee coins and small coins with RBI form currency in circulation. Rupee coins and small coins in the balance sheet of the Reserve Bank of India include ten-rupee coins issued since October 1969, two rupee-coins issued since November 1982 and five rupee coins issued since November 1985.

Next, what is the problem? See this table:


What if we all use Bitcoins ? Some Lessons from the Gold Standard

April 1, 2016

An interesting paper by Warren Weber of Bank of Canada.

It looks at what if this happens in future and then draws lessons from history! So say we all move to Bitvoins. What will it look like? Will it last? One could draw lessons from Gold Standard:


How to rob a central bank? Case of Bangladesh…

March 21, 2016

I did read this news last week but forgot to blog about it. Bloomberg edit team uses the case as a warning to all central bankers who can know more ignore cyber threats at their end. So far hackers were limited to banks but now have moved to central banks as well. Willie Sulton, the bank robber was once asked  why he robbed a bank? TO which his answer was “that is where the money is”. Likewise, why just stop at a bank. Get to the creator of money which is the central bank.

What was this Bangladesh story? Few people managed to hack their system and get funds transferred to remote accounts elsewhere.  It is just an amazing case of heist in digital space. As this blog keeps mentioning, banking is increasingly becoming a sub-sector of information technology. A bank is no more just about loans and deposits but equally about encryption and softwares. Soon, latter will take over former in terms of importance given how systems are getting integrated. This blog will not be surprised if we go onto see technology people heading and managing a bank.



Photography at the Bank of England…

March 18, 2016

This is a good and rare time to be a history buff. Most central banks are digging deeper and deeper into its history as present is so messed up.

So there was an exhibition at the Bank of England Museum which sheds light on different aspects of the organisation’s history through photographs.

There is an article by Bryony Leventhall and Anna Spend on the exhibition. And here is a series of pictures from the event.


Behind the mysteries of the Federal Reserve

March 18, 2016

The kind of attention Federal Reserve gets worldwide one would imagine that this is one institution which must be having broad approval from US people and polity. Ironically, it is actually just the opposite.

Unlike most parts of the world where discussion on central banks is just about their rate moves, in US one finds equal number of discussions on origins and relevance of Fed. This has gained steam after the crisis and lots of stuff is being written looking at historical basis of Fed.

One such recent book is by Prof Peter Conti-Brown, a professor of legal studies and business ethics at Wharton. Here is his interview where he makes several food for thought points:


Federal Reserve’s Statistical Releases: a Publications History

March 17, 2016

This paper by Sian L. Seldin  is quite a surprising one.

One would imagine it would explain how various Fed’s stats publications have changed overtime. This it does but keeps explanation to a minimum. All it does is list the various publications overtime. In the end there are appendices which stitch the story together.

The Board of Governors of the Federal Reserve System has published extensive statistical information on the U.S. economy and banking industry since 1914. This information has been published in various formats, usually referred to as “statistical releases.” Titles and release numbers of the publications have changed frequently. Federal Reserve Board Statistical Releases: a Publications History describes these changes; it is a convenient tool that lightens the burden of tracing the titles and release numbers by providing history in a single location.

A paper with no references whatsoever..

Reimagining money and banks: What if both were designed to build trust instead of wealth?

March 9, 2016

This is an interesting article which helps you think differently on role of money and banking in a society. Both money and banks are seen as wealth creators and we want more and more of both. However, this is not how both began to emerge. The idea for money and banks was to help communities and foster local commerce.

Interestingly, we are seeing some experiments which take us to the original roles of money and banks:


Time for Helicopter Money?

March 4, 2016

As if so much central bank activism was not enough, Kemal Dravis says they can still do a lot more. Time for the helicopter drop:


Should Fed have an international goal too?

March 3, 2016

Andres Velasco says Fed should take onus of its global role and act accordingly.

In times when Fed is struggling to manage its domestic role, should it add international goals too?


Understanding the US Treasury and Federal Reserve’s con game

March 2, 2016

Dan Sanchez of Mises Institute has this scathing post on the topic. It is on US Treasury/Fed but applies to most economies across the world.

Actually keeping all insights from Austrian school away from teaching, we all succumb to the noise around central bank independence. We don’t even question what is this independence when both the Treasury and central banks are part of the same setup. The independence bit looks like just a cover up act so that people don’t question the overall monetary operations which move from one govt dept to another seamlessly…

Municipalities and neighborhoods establish local currencies to invigorate their communities..

February 26, 2016

Marina Primorac of IMF has this nice piece on local currencies:


If Trump is elected as President, what does it mean for the Fed?

February 25, 2016

It is one thing to reform the Fed, completely another to see Trump first getting elected as President and then reforming the Fed.

Things have become so negative for Federal Reserve (and ECB and BoE and BoJ and SNB and..??) that it has become a punching bag of sorts. Ryan McMaken of Mises has this bit on whether Trump will reform the Fed or not. Even more interesting is that all President candidates have spoken about reforming the Fed. From an institution which was beyond reproach some years ago, Fed has become such a reproachable organisation:


Should ECB have twin goals as Fed?

February 22, 2016

Biagio Bossone and Stefano Sylos Labini look how ECB could have better managed the crisis.

They pick a note from Franco Modgiliani  and other scholars which argued for a broad based ECB:


What is monetary policy anyway other than centralized economic planning?

February 9, 2016

Paul-Martin Foss of Mises Institute makes a point which is so difficult to fathom for even most economists – Central banks are nothing but central planners.

He says most economics teaching has poor things to say on planning but is in awe of central banking. Why should this be?


How the use of floating-rate loans changes the impact of monetary policy

February 5, 2016

Filippo Ippolito, Ali K. Ozdagli and Ander Perez add another dimension to the monetary policy transmission channels. This one adds floating rates to the discussion.



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