Archive for the ‘Speech / Interviews’ Category

A monetary policy framework for all seasons?

January 13, 2020

Mark Carney of Bank of England in this speech argues that Inflation targeting has been a framework for all seasons in UK:

To set the stage for today’s discussions, I would like to do two things. First, I will review the conduct and performance of inflation targeting during my time as Governor. This period, which roughly coincides with the post-crisis recovery and which has seen more than its share of shocks and structural developments,
provides some insights to the ability of inflation targeting to deliver price stability and support macroeconomic outcomes. I will suggest that, so far at least, inflation targeting has proven to be a framework for all seasons, an essential part of a robust foundation for economic prosperity.


To conclude, the flexibility in the UK monetary policy framework means that the MPC has been able to support the UK economy through the changing of the seasons.

Despite the economy being buffeted by diverse and sizable shocks since the recovery began, inflation has averaged 1.7%; GDP growth has generally been robust, averaging around 2%, and above the subdued rate of potential supply growth. The wide margin of spare capacity present after the crisis was absorbed,
unemployment is at multi-decade lows and employment at an all-time high. Real wages have finally returned to relatively strong rates of growth. Inflation expectations have remained anchored to the target, even when CPI inflation has temporarily moved away from it.

This performance underscores that the bar for changing the regime is high. But it is nonetheless healthy to review it periodically, and that review is supported by the Bank’s active research agenda. Today’s workshop is organised with that in mind, and we appreciate all your contributions to help focus our research efforts.

There is an old saying that there is no such thing as bad weather, just inappropriate clothing. With the economic climate changing, let’s ensure that the Bank remains well suited to deliver its mission to maintain price and financial stability in support of the Good of the people of the United Kingdom


I would actually argue that more than the framework, central bankers have been really flexible to bring all kinds of changes in the monetary policy.

Christine Lagarde interview: Owl, Green ECB, Taking ECB closer to people etc..

January 9, 2020

Interview of Christine Lagarde.

Given the obsession with ornithology of central bankers, she considers herself as an owl:

You have described yourself as neither a dove nor a hawk, but rather an owl. Why exactly this rather unusual type of bird?

Owls are traditionally seen as birds of wisdom that can see well in the dark and have a wide range of vision. However, what I really wanted to highlight was my wish to ensure that discussions within the Governing Council take place in an efficient, of course, but also composed manner.


Taking ECB closer to people:

Given the major challenge posed by populism, how can the ECB be brought closer to the citizens?

This is one of my priorities. Bringing the ECB closer to the people requires dialogue and explanations. We need to engage with our fellow citizens and enter into dialogue with them. We need to explain to them – also through you – what the ECB does and that we are committed to doing its work effectively. We should bear in mind that three-quarters of euro area citizens are in favour of the euro.

Your mandate is to ensure price stability. Is this the main issue today?

Doesn’t asking the question imply an assumption that price stability has been maintained? I would take that to be a compliment for the ECB. Indeed, since the introduction of the euro, annual inflation has averaged around 1.7% in the euro area. However, inflation currently stands at 1% and inflation projections are still low, at some distance from the level of below, but close to, 2% that we would like to reach over the medium-term.

Green ECB?

The President of the European Commission, Ursula von der Leyen, has presented her “Green Deal”. How will it interact with ECB policy? Are you going to transform the ECB into a green bank?

I commend the determination of my friend, Ursula von der Leyen, and her commitment to the environment. This battle is to our credit in Europe, with all of us acting within our remits. In this, I also include the European Investment Bank. We will play our part within the framework of our mandate of maintaining price stability and of banking supervision. What effects do climate-related risks have on our growth and inflation projections? What signals do we send through our bond purchases and what assets are held by the banks that we supervise? The stakes are high enough to arouse a keen interest in these questions, while pursuing our primary mission. As regards monetary policy, the review of our strategy will be the ideal time to address these questions.

The decade of 2020s will continue to be challenging for ECB..

45 years of Central Bank of Barbados: 1972-2017

December 23, 2019

Central Bank of Barbados has released a book on its website (freely available). The book is written by Harold Codrington, retired deputy governor of the Central Bank of Barbados where he worked for 37 years.

Both Sides of the Coin tells the history of the first forty-five years of the Central Bank of Barbados. It outlines the Bank’s role and function, explains its operations, and details how its employees helped to fashion a modern society and economy and build an institution of which all Barbadians can be proud. As Professor Andrew Downes commented “readers would be engrossed in the intricacies of economic policy making from a central bank perspective.”

CBB Governor Cleviston Haynes gives a speech on the occasion:


Earlier ECB resembled Bundesbank, now ECB resembles Fed?

December 20, 2019

Benoît Cœuré, member of ECB’s last day at the central bank is on 31 Dec 2019. ECB just organised a colloquium in his memory. This is a tradition which RBI should adopt as well  and organise conferences for the outgoing top management.

In this interview, he is asked to reflect on his tenure, ECB and so on. One question is changes in ECB design:

Since you started at the ECB in January 2012, the institution has undergone a fundamental transformation. It used to be much like the Bundesbank, but now it acts more like the US Federal Reserve.

The existential crises we went through, first with Spain and Italy in summer 2012 and then with Greece in summer 2015, and the actions of one man, Mario Draghi, who was President of the ECB until November this year, gave us the necessary maturity to make full use of the instruments granted to us by the treaties. Does this mean that we have become like the Federal Reserve? In a certain sense, yes, because we are equipped with a comprehensive toolbox to support the euro area economy at all times, using tools like quantitative easing inspired by the US model, and the capacity to intervene in the markets. But there are also significant differences. For a start, we don’t have the same mandate – the Federal Reserve has a dual mandate that gives equal weighting to price stability and full employment, while the ECB’s mandate prioritises price stability. And our financial markets are not the same – bond markets in the United States are very deep and liquid, which gives the Federal Reserve an almost unlimited capacity for intervention. In Europe, there is no capital markets union – bond markets are fragmented across 19 countries, which limits the capacity of monetary policy.

Interesting. Usually, European central bankers refuse any similarity to US ones.

Further on accomplishments and regrets:


Why Australian banks remain stable?

December 17, 2019

Apart from Canada, Australia also seems to be a country with fairly stable banking system.

In a speech, Jonathan Kearns, Head of Financial Stability at RBA points to this remarkable history:

Australian banks in particular serve critical functions in the Australian economy by providing credit intermediation and more generally facilitating economic activity. Australian banks are profitable and resilient and a strong banking sector has contributed to Australia’s extended run of economic growth. It’s hard to imagine a modern economy without a banking sector. The eight largest Australian banks can trace their history back, on average, over 140 years. 

140 years is quite good! Some of the bank names are here.

He also reviews developments in Australian banking sector which is really nicely done. The speech is a prototype of how central banks should tell the public about performance of banking sector.

U.S. Regulations and Approaches to Cryptocurrencies: Drawing lessons from history

December 13, 2019

Most major countries are talking about digital currencies barring US.

Interesting speech by Michael Held of NY Fed who reviews existing regulations in US regarding digital currencies:

Thank you, Diego, for “volunteering” me to speak about digital currencies—a field in which I count myself as very much a trainee, not an expert. Today I will focus on the U.S. regulatory landscape for digital currencies, in particular on digital currencies issued by private organizations that are intended to be used like money. As always, the views I express are my own, not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.1

Policy makers and regulators in the United States, to date, have not developed an overarching framework for regulating private digital currencies. The field has been seen as too new for a comprehensive regulatory response. To be sure, the digital nature of new private currencies will raise challenges to which policy makers must respond. In my view, however, we spend so much time wrestling with the novelty of digital currencies that we forget that private currency is nothing new. The theme of my talk today is accordingly best encapsulated by a quote that is attributed—perhaps wrongly—to Mark Twain: “History may not repeat itself, but it does rhyme.”

He draws lessons from US history on free banking:


Time for e-Euro?

December 6, 2019

I have just recently written for Moneycontrol on how European central bankers particularly French are really keen on introducing a central bank digital currency.

Christine Lagarde (who is French!), recently appointed at helm of ECB in her first hearing at the European Parliament interestingly spoke on CBDC:

The other topic you have asked me to discuss today is the future of money. Indeed, as central banks navigate a complex and changing landscape, we should not only aim to anticipate future trends, but also seek to shape them. In doing so, we should be particularly attentive to risks and perform a thorough analysis of their costs and benefits.


A central bank digital currency would allow citizens to use central bank money directly in their daily transactions. However, depending on its design, a central bank digital currency could pose risks. For instance, they could alter the way in which monetary policy is conducted and transmitted to the real economy. They could also carry implications for the functioning of the global financial system and its stability. The question of central bank digital currencies and their optimal design therefore warrants further analysis.

Our ultimate goal is to foster safer, innovative and integrated payments in euro. This will in turn benefit everyone in the euro area and strengthen the euro internationally.

François Veilleroy De Galhau of Banque De France in a recent speech (4 Dec 2019), gave a more detailed speech on CBDC:

I shall turn now to a topic that is a major challenge for the future of the international monetary and financial system: the possible creation of a central bank digital currency (CBDC). The creation of a new form of currency by central banks goes beyond the challenges I have just mentioned: it is neither a precondition for nor a guarantee of more efficient payments. However, we as central banks must and want to take up this call for innovation at a time when private initiatives – especially payments between financial players – and technologies are accelerating, and public and political demand is increasing. Other countries have paved the way; it is now up to us to play our part, both ambitiously and methodically.

To this end, the Banque de France is to be reorganised. The current Direction de la surveillance des paiements et des infrastructures de marché (DSPM – Payments and Market Infrastructures Oversight Directorate) will become the Direction des infrastructures, de l’innovation et des paiements (DIIP – Infrastructure, Innovation and Payments Directorate), and its scope will be extended to cover all payment innovations, infrastructures and central bank digital currency. Additional skills will be recruited to strengthen its expertise, and, with the help of our Lab, the DIIP will work with industry innovators from the private sector: we want to start running experiments rapidly and will launch a call for projects before the end of the first quarter of 2020. We are particularly keen to take part in experiments to integrate a “wholesale” CBDC into innovative procedures for exchanging and settling tokenised financial assets. Nathalie Aufauvre, Director General of Financial Stability and Operations, will coordinate the Banque de France’s acceleration process. Our actions will naturally contribute to the work of the Eurosystem, which should make looking into the possibility of an “e-euro” one of its next focuses: Christine Lagarde referred to it on Monday in front of the European Parliament. Beyond this, we intend to take part in the work of the “innovation hub” recently created by the BIS.

On a substantive level, I would like to share with you some first thoughts – which are still open to discussion, of course – on three aspects: the objectives, externalities and possible modalities of a central bank digital currency.

1/ At this stage, I can see three different – but not mutually exclusive – objectives for digitalising central bank currency. The first relates to the desire, in countries such as Sweden where cash use is declining rapidly, to guarantee all citizens access to central bank money. A CBDC would help to preserve the trust in the financial system that stems in part from being able to exchange assets for legal tender. The second argument relates to the efficiency gains, reduced intermediation costs and resilience that would potentially result from the “tokenisation” of a central bank currency, especially in settlement and post-trade activities (which is also one of the objectives of JP Morgan’s JPM Coin project). The third and final reason – and the most important one for political authorities, including in France and Europe – is that creating a CBDC would give us a powerful lever with which to assert our sovereignty in the face of private-sector initiatives such as Libra. This is also one of the concerns highlighted by the People’s Bank of China with its Digital Currency Electronic Payment (DCEP) project.

In this context, what form should our CBDC take? Public expectations on this differ significantly from those of financial institutions. As a result, in the long term, two different uses of the CBDC could exist side by side: one for payments between financial sector players (a so-called “wholesale” currency) that uses blockchain technology and all its possibilities, notably smart contracts; and another for the general public (a so-called “retail” currency) that is simpler and better suited to retail transactions. In this respect, financial institutions are much more digitally mature than private individuals as they already access central bank currency digitally via the bank accounts they hold with the central bank. In addition, following on from the questions raised by the Governor of the Bank of England, Mark Carney, on the idea of creating an international digital currency in response to the dominance of the US dollar, I think there would be some advantage in moving rapidly to issue at least a wholesale CBDC, as we would be the first such issuer in the world and would thus reap the benefits of having a benchmark CBDC.

2/ The issuance of a CBDC can generate significant positive externalities by increasing the productivity of the financial sector and by extension the economy, and by shoring up confidence in the currency and in the financial system. But, in parallel, it is vital that we examine the potentially negative externalities that a CBDC could generate for liquidity, profitability and bank intermediation. In particular, we need to look very closely at the risks linked to large-scale and/or sudden conversions of bank deposits into central bank money.

3/ The third aspect is the modalities that could be used to circulate the CBDC, especially the “retail” version, about which we need to be particularly vigilant. I’m thinking about the issue of its legal tender status – which is not indispensable but probable; the conditions under which it can be held – in the form of accounts rather than tokens; and last, whether non-residents will have access to it, which would certainly help to raise its international status. Moreover, thanks to their proven expertise in payment instruments, know-your customer requirements and transaction monitoring, financial intermediaries will be able to play a front-line surveillance role in the distribution of the CBDC. In parallel, we will also need to launch a reflection to define the conditions under which the CBDC could circulate anonymously “from person to person”. Limits could be set for the size of anonymous transactions, such as those already applicable in France for e-money and cash payments.


Contemplations of an interest-rate dove and inflation hawk

December 6, 2019

Interesting title of an interesting speech by Per Jansson, DG of Riksbank.

He says he is a combination of inflation hawk and interest rate dove!


Risks and benefits of modern financial technology: Lessons from a 17th century stablecoin

December 3, 2019

Nice speech by Klaas Knot of Netherlands central bank.

He points how Bank of Amsterdam was doing similar things as today’s proposals for stablecoin:


Economics as a profession: from science to practice

December 3, 2019

Benoît Cœuré of ECB in this speech:

It is a true pleasure to be back here at the Paris School of Economics (PSE).

You are now on the home stretch. I well remember how I felt during my own final year: excited, anxious and curious all at once.

Over the next few months, you will need to take serious, life-changing decisions. The data suggest there is about a two-in-three chance that you will pursue further studies.

For many, a master’s degree is a natural step towards a PhD. And a PhD is essentially a promise of employment. In the United States, for example, the unemployment rate for PhD economists is about 0.8%, the lowest among all sciences.[1] Not a bad place to start from.

But a PhD is not about financial optimisation. Estimates for the United Kingdom suggest that British men with a master’s degree earn 23% more than those who could have gone to university but chose not to.[2] The earnings premium for a PhD, which often takes three to five times as long, is just 26%. For some subjects, the premium for a PhD even vanishes entirely.

So first piece of advice: your PhD should be fuelled by your passion and your love for research rather than by hopes of earning more money.

Money was clearly not the reason for me to join the labour market in 1992 when I graduated from PSE with a Master in Analysis and Policy in Economics.

My first appointment took me to the National Institute of Statistics and Economic Studies, or INSEE, before I moved on to the French Treasury and then, in 2012, to the European Central Bank (ECB).

The path that I chose to explore is just one of many that are open to you. The good news is that the solid training you receive here at PSE makes it your choice.

The world of economics is incredibly broad. I will leave it to the participants of the two roundtables this evening to make a convincing case for their respective institutions, although I would not be surprised if many of you take the lead from the English author G.K. Chesterton who said, “I owe my success to having listened respectfully to the very best advice, and then going away and doing the exact opposite”.

But I wouldn’t be here tonight if I hadn’t planned to use this opportunity to make at least some publicity for the public sector.


25 years of independence of Central banks of Mexico and Spain

November 29, 2019

Central Bank Independence seems to be a great deal in Latin American countries. There is a reason why Central bank of Mexico organised a seminar to reflect on the 25 years of its independence.

Pablo Hernández de Cos, Governor of Central Bank of Spain gives a speech at the seminar:

The Banco de España was granted institutional independence in July 1994. So this year, as is also the case for the Banco de México, marks the 25th anniversary of our Law of Autonomy. The independence of the Banco de España came about as part of the European economic integration process. Following the requirements laid down in the Maastricht Treaty, central banks in the European Union were meant to pursue the primary objective of price stability and be vested with a large degree of independence, both political and operational. Participation in the monetary union also entailed a change in the relationship
between Treasury and central bank so as to incorporate the prohibition of monetary financing of government deficits.

Central bank independence was granted with a large degree of legal protection and, as a matter of fact, no country in the European Union can change it at its own discretion. Of course, the independence of the central bank does not mean arbitrariness, as it is well counterbalanced by high transparency and accountability requirements and practices. 

Granting independence to the Banco de España some years before the introduction of the euro as a common currency reflected Spain’s strong ambition to become a founding member of the European Economic and Monetary Union. It was also the result of a firm political conviction as to the benefits of price stability and the advisability of delegating the pursuit of this goal to an independent central bank. Price stability requires a medium-term orientation and the independence of the monetary authority creates credibility by helping to keep inflation expectations anchored while avoiding time inconsistency problems.1 These reasons were particularly compelling for the Spanish economy in light of the previous experience of relatively high inflation.



Central bankers as explorers/navigators such as Vasco Da Gama, Columbus…

November 29, 2019

Klaas Knot of Dutch Central Bank in this speech:

We are drawing closer to the end of the year in which the ECB has been celebrating its twentieth anniversary. Typically, this type of event leads one to look back and reflect on the lessons learnt over time. And to evaluate how the lessons learnt can be taken on board in future endeavors. Indeed, the year has seen many conferences and papers dedicated to the tale of the ECB’s first two decades. For European central bankers, the second of these two decades has been particularly challenging.

In the last decade, the ECB has been navigating uncharted waters with unconventional monetary policy, just like Magellan, Sir Francis Drake and Columbus. We were not without compass, nor without a clearly set course. But nevertheless, the waters we navigated were new to us. No maps were available. And, again like those famous explorers, we were vigilant, alert and prudent. Now that we seem to have reached a harbor of some sort, and a new captain is aboard, we should consider charting the unchartered. We should draw maps of the coasts we discovered. We should mark where the sea monsters live. We should be the cartographers of unconventional monetary policy.


Not sure many would agree to this comparison!

How Neoliberal Thinkers Spawned Monsters They Never Imagined

November 28, 2019

Interesting interview of Wendy Brown who has written a book on the topic:

Lynn Parramore: To many people, neoliberalism is about economic agendas. But your book explores what you describe as the moral aspect of the neoliberal project. Why is this significant?

Wendy Brown: Most critical engagement with neoliberalism focuses on economic policy – deregulation, privatization, regressive taxation, union busting and the extreme inequality and instability these generate. However, there is another aspect to neoliberalism, apparent both in its intellectual foundations and its actual roll-out, that mirrors these moves in the sphere of traditional morality. All the early schools of neoliberalism (Chicago, Austrian, Freiburg, Virginia) affirmed markets and the importance of states supporting without intervening in them.

But they also all affirmed the importance of traditional morality (centered in the patriarchal family and private property) and the importance of states supporting without intervening in it. They all supported expanding its reach from the private into the civic sphere and rolling back social justice previsions that conflict with it. Neoliberalism thus aims to de-regulate the social sphere in a way that parallels the de-regulation of markets.

Concretely this means challenging, in the name of freedom, not only regulatory and redistributive economic policy but policies aimed at gender, sexual and racial equality. It means legitimating assertions of personal freedom against equality mandates (and when corporations are identified as persons, they too are empowered to assert such freedom). Because neoliberalism has everywhere carried this moral project in addition to its economic one, and because it has everywhere opposed freedom to state imposed social justice or social protection of the vulnerable, the meaning of liberalism has been fundamentally altered in the past four decades.

That’s how it is possible to be simultaneously libertarian, ethnonationalist and patriarchal today: The right’s contemporary attack on “social justice warriors” is straight out of Hayek.

All human constructs have serious limitations…

Keynes and Fiscal Federalism in India: History, Ideology and Practice

November 26, 2019

RBI organises 4 memorial lectures:

NK Singh delivered the 17th LK Jha Memorial lecture.

It is interesting and odd how all of these lectures have been given by scholars and policymakers based elsewhere. All these years, there has not been a single lecture from an academic/policymaker based in India.

N.K. Singh happens to be the first speaker in these lectures who is currently serving as the chair of the 15th Finance Commission. Not surprisingly, Mr Singh chooses to speaks on fiscal federalism (Sharing of financial resources between Central Government, State Governments and Local governments). Fiscal federalism has become an important topic of late given the late addition to its terms of reference.

At the end of his lecture, Mr Singh quotes Keynes which sums up the evolution of fiscal federalism in India:

In the context of remark that markets may remain irrational longer than I can remain solvent, John Maynard Keynes is reported to have remarked that when facts and circumstances change, I change my mind – what do you do?

The facts and circumstances on Fiscal Federalism have changed. Time to change our mind.

The lecture points to some of these changes. Read the whole thing…


Canada’s banking system and its resilience

November 22, 2019

Canada has a long history of financial/banking stability compared to most other nations.

In this recent speech, Carolina Wilkins, DG at Bank of Canada  points how the system will remain stable despite the worst possible adverse shocks:

Canadian banks are part of a global banking system that is more solid than it was a decade ago. Globally active banks are holding over US$2 trillion more capital than they were at the beginning of 2011, when the phase-in of the post-crisis reforms began. This translates to a 7-percentage point increase in their Tier 1 capital ratio.11  The leverage limits and new liquidity regulations also make these banks more resilient.12

Canada has implemented new measures to further strengthen our banking system. For example, Canada’s prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI), increased the required amount of capital that Canada’s big banks have to hold to protect themselves against financial-system vulnerabilities. Canada introduced a bail-in regime to ensure that investors—not taxpayers—would take the brunt of the financial burden in the unlikely event that a big bank were to fail. Also, OSFI asked many smaller, single-business-line banks to reduce their reliance on short-term brokered funding, which can be flightier in stressful situations.

The Bank of Canada, along with OSFI, evaluates these safeguards by conducting stress tests on the major banks. Given that the idea is to plan for the worst, it’s important to study extreme scenarios. The most recent test was in the context of the International Monetary Fund (IMF)’s Financial System Stability Assessment of Canada, published in June.13 

The scenario used was worse than anything seen in Canada in recent decades. There’s a recession that lasts two years, the unemployment rate increases by 6 percentage points, and house prices fall by 40 percent.14 Clearly this would be very difficult for people if it were to materialize. That said, this test found that our banks could withstand even this kind of severe, system-wide shock. This says to me that efforts to increase resilience in the banking system have been worthwhile, because they would help prevent a bad situation from becoming even worse.


Financial technology: the 150-year revolution

November 22, 2019

Pablo Hernández de Cos Chairman of the Basel Committee on Banking Supervision and Governor of the Bank of Spain gives this nice speech.

The past few years have seen growing interest in technology-driven innovation in financial services.


Yet finance and technology have a long and symbiotic relationship. Finance has always shaped technological developments. For example, the Industrial Revolution was facilitated by the provision of capital provided by financial intermediaries in the 18th and 19th centuries.  And technology has been used in finance for over 150 years. As Douglas Arner of the University of Hong Kong and his colleagues have catalogued, one can think of three waves of technological disruptions in finance.4 The first wave of technology (“fintech 1.0”) was prompted by the completion of the first transatlantic telegraph cable in 1866 and saw finance gradually shift from analogue to digital.

This was followed by a second wave of technological innovations in financial services, starting with the advent of the automated teller machine
(ATM) in 1967 (“fintech 2.0”). Fast forward and we are now witnessing a third wave of increasing technological pervasiveness in finance, coupled with the emergence of new actors and channels for the provision of finance (“fintech 3.0”).

So when put in a historical context, fintech is not necessarily a new phenomenon or an abrupt Kuhnian transformation.5 What’s more, the recent burst of activity in the fintech space has inevitably raised questions about whether we have reached “peak fintech”, only for it to be followed by a steep trough of disillusionment as part of a hype cycle (Graph 5).6 Some have asked whether we are spectators at an “innovation theatre” that “promotes the impression of innovation and the future value that it brings” with concrete tangible improvements.7 And, more generally, regardless of the advancements made in technology, the role of human judgment is an essential element in banking and supervision.


There are 5 scenarios for banks in future:

  • Better Bank
  • New Bank
  • Distributed Bank
  • Relegated Bank
  • Disintermediated Bank

Read the speech for more details…

How important is it for a nation to have a payment system?

November 19, 2019

Nice speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank.


Central bank independence works differently for monetary policy and banking supervision

November 15, 2019

Nice speech by Yves Mersch of ECB. He says we need to think differently about independence when it comes to banking supervision and regulation:

As mentioned earlier, we need to differentiate between how the principles of independence and accountability apply in the central banking context on the one hand, and in respect of the ECB’s supervisory tasks on the other[13].

The wording of Article 130 of the Treaty makes it clear that the principle of independence concerns the performance of ESCB tasks conferred upon the ECB by the Treaty itself, that is, central banking–related activities. I therefore share the view that this Article cannot be applied equally to the exercise of the ECB’s supervisory functions, which were assigned to the ECB through secondary EU legislation rather than by the Treaty,[14] and were intended for purposes other than the pursuit of the price stability objective.

Whereas the ECB has fully autonomous regulatory and decision-making powers when conducting monetary policy,[15] its discretion in carrying out its supervisory tasks is confined by the decisions taken by European and national legislators or regulators. Moreover, the ECB has a different and higher degree of accountability for its supervisory tasks than for its monetary policy task. This is because taxpayers may be affected by the way in which microprudential supervision is conducted, notwithstanding the intention under the new EU banking resolution regime for the costs of bank failures to be borne by the bank shareholders and creditors.

I in no way question the necessity for banking or financial supervisors to be operationally independent from undue political, commercial banking or other third-party influences. My point is that the degrees of independence that the ECB enjoys as a monetary policy authority on the one hand, and a banking supervisor on the other differ: both the source of independence and the ECB’s role are different in the two functions. And for these reasons, independence in the monetary policy function is stronger and more firmly embedded in the EU institutional framework than it is in the case of the supervisory function.


Most of the time, people are mixing these two aspects of central bank independence.

He also mentions that there are four kinds of independence (when it comes to mon policy):


Payment system of today and tomorrow in Sweden: It is more worried about decline of physical cash

November 12, 2019

Speech by Stefan Ingves, Governor of Riksbank.

Most other central banks are worried about high usage of cash and want to push digi payments. Opposite is true for Sweden whose central bank is worried over decline in usage of cash and wants to keep cash as a payment option in future.

Ingves says cash should remain in circulation for three reasons: Vulnerability, Availability and Competition. It has already asked the government to decide on the legal tender status of cash.


The Road to Serfdom at 75: When central bankers reflect on lessons from Hayek

November 7, 2019

Yale Univ recently organised a conference on the 75 years of Hayek’s book : Road to serfdom. I had pointed to a fascinating paper on the Book’s 75 years earlier.

One of the speakers in the Yale event was Randall Quarles, Vice chair of Federal Reserve.

In his speech he reflects on lessons from Hayek:

The financial crisis, and the deep recession that followed it, prompted changes in the United States’ regulatory framework. These changes have been designed to make the financial system more resilient than it was before the crisis. By creating appropriate incentives and rules, they should also encourage financial markets to price risk more appropriately than they did in the years leading up to the crisis—for example, by reducing the danger of investor complacency regarding the riskiness of their investments and the possibility of adverse scenarios. If we follow Hayek and regard the price system as like a telecommunications network, and then apply that metaphor to the financial sector, we can think of the institutional and regulatory changes to the financial system over the past decade as designed to improve the reliability and signal quality of the transmissions.25

How does all of this relate to the larger questions of philosophy and social order to which Hayek devoted much of his thought? Hayek’s insights about the price system depend importantly on his theory of knowledge: The information that is available to us as a society is the aggregate of the highly dispersed and sometimes inarticulate knowledge possessed by each of us individually. It is not only hard to convey that information to a central authority for processing into a rational decision—it is also conceptually impossible given the nature of that knowledge. And, indeed, important parts of that knowledge will not even be generated except through our interaction with each other through the mechanism of the market. Trying to centralize economic decisionmaking, then, is not just too hard to do as a practical matter. It would actually reduce the amount of knowledge available to us as a society, by replacing those myriad individual interactions in a free marketplace. Thus, even if some technological way to aggregate information other than through prices could be invented, it would lead to less efficient, less humane outcomes because it would be based on less total human information.

The price mechanism, then, is not just a matter of economics—it is a matter of social and, indeed, civilizational progress. As Hayek says in The Constitution of Liberty, “[C]ivilization begins when the individual in pursuit of his ends can make use of more knowledge than he himself acquired and when he can transcend the boundaries of his ignorance by profiting from knowledge that he himself does not possess.”26

I think this ties together the various threads of Hayek’s thought throughout a long life: his early work on psychology (“How do we know?”), his later epistemology (“What do we know, and what does it mean to know it?”), his economics (“How do we make knowledge usable?”), and his social and political theory (“What institutions will ensure that the greatest amount of human knowledge will be usable in the pursuit of their human fulfillment?”). Contrary to those polemicists across the ideological spectrum whose tendentious simplifications of Hayek’s thought would turn him into a crude icon rather than a complex thinker, this is a deeply human, and a deeply humane, project. I will look forward to the contributions of the others you will hear from today in how Hayek elaborated it and how we can further these principles today.


Hayek would be amused to see central bankers reflecting on his central lesson on the need to “decentralise economic activity”. Infact, Hayek would point that the crisis was due to central banks designed incentives in such a way that people took higher risks. He would say post-crisis regulation will lead to similar problems as again regulation etc is all coming from centralised agencies..

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