what future for central banks?
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What future for Central Banks?. Hong Kong Theatre – LSE London - 24 November, 2005. Howard Davies Director The London School of Economics. 2. No ‘dull Governor’…. 3. …No ‘dull Governor’?. 4. Functions of Central Banks. Country Monetary Policy Bank Supervision Note Issue. Part. - PowerPoint PPT PresentationTRANSCRIPT
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What future for What future for CentralCentral Banks?Banks?
Howard DaviesHoward Davies
DirectorDirector
The London School of EconomicsThe London School of Economics
Hong Kong Hong Kong TheatreTheatre – LSE – LSE London - 24 November, 2005
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2. No ‘dull Governor’… 2. No ‘dull Governor’…
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3. …No ‘dull Governor’? 3. …No ‘dull Governor’?
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4. Functions of Central Banks4. Functions of Central Banks
CountryCountry Monetary PolicyMonetary Policy Bank Bank SupervisionSupervision Note IssueNote IssueUS US UK UK FranFrancece
CanadCanadaa[ EC[ ECBB
GermaGermany ny ItalyItalyJapaJapann
Small Small Part Part
ParPart t
Small Small Part Part
]]
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5. Central Bankers/100,000 5. Central Bankers/100,000 inhabitantsinhabitants
0 10 20 30 40 50 60 70
Russia
Euro-area
USA
Sweden
S. Africa
Australia
Japan
UK
Central Bankers/ 100,000 inhabitants
Source: The Economist, 2005
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6. Central Bank ‘Efficiency’6. Central Bank ‘Efficiency’
0
50
100
150
200
250
Inefficiency (%)
Source: Central Banking Publications, 2005
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7. Central Bankers’ Salaries 7. Central Bankers’ Salaries ($’000)($’000)
0
100
200
300
400
500
600
700
800
$'000
A. Fazio?
J-C TrichetMervyn King
A. Greenspan
A. Weber
I. Macfarlane
Source: FT, 28/10/2005 (CentralBankNet.com for Fazio’s unconfirmed 2003 salary)
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8. Four Trends8. Four Trends
1. Inflation targets1. Inflation targets
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9. Four Trends9. Four Trends
1. Inflation targets1. Inflation targets
2. Changes in Financial 2. Changes in Financial SupervisionSupervision
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10. Countries with Integrated 10. Countries with Integrated Regulators Regulators 1986
1990
1991
1998
2000
2001
2002 2004
KredittilsynetKredittilsynet ( (Norway - March Norway - March 1986)1986)Finanstilsynet (Finanstilsynet (Denmark - January 1990)Denmark - January 1990)
Finansinspektionen (Finansinspektionen (SwedenSweden - July 1991) - July 1991)Financial Supervisory Commission (Korea - April 1998)Financial Supervisory Commission (Korea - April 1998)
Financial Services Agency (Japan - July 2000)Financial Services Agency (Japan - July 2000)Fjármálaeftirlitið (FME) (Iceland - June 1998)Fjármálaeftirlitið (FME) (Iceland - June 1998)
FSA (UK - December FSA (UK - December 2001)2001)**
BaFin (Germany - May BaFin (Germany - May 2002)2002)
Finanzmarktaufsicht (Austria - Finanzmarktaufsicht (Austria - April 2002)April 2002)
Finantsinspektioon (Finantsinspektioon (EstoniaEstonia - May 2001) - May 2001)
CBFA (Belgium - August CBFA (Belgium - August 2002)2002)Agency of Financial Supervision (Kazakhstan - April 2004)Agency of Financial Supervision (Kazakhstan - April 2004)
* FSA fully * FSA fully integrated in integrated in 2001, but has 2001, but has existed since existed since October 1997October 1997
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11. How the Centres Rank in 11. How the Centres Rank in Terms of their Regulatory Terms of their Regulatory EnvironmentEnvironment
02468
101214161820
London New York Paris Frankfurt
Average Score
Source: Z/Yen, 2005
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12. Four Trends12. Four Trends
1. Inflation targets1. Inflation targets
2. Changes in Financial 2. Changes in Financial SupervisionSupervision
3. Financial Stability3. Financial Stability
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13. Bank of England ‘Financial 13. Bank of England ‘Financial Stability Review’Stability Review’
“The Financial Stability Review aims:
• to encourage informed debate on financial stability issues, domestically and internationally
• to survey potential risks to financial stability
• to analyse ways of promoting and maintaining a stable financial system”Source: Bank of England, 2005
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14. Four Trends14. Four Trends
1. Inflation targets1. Inflation targets
2. Changes in Financial 2. Changes in Financial SupervisionSupervision3. Financial Stability3. Financial Stability
4. Public Expectations 4. Public Expectations
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15. Guiding Principles for 15. Guiding Principles for Central Banks Central Banks
1. 1. Price stability provides substantial benefits2. 2. Fiscal policy should be aligned with monetary policy3. 3. Time inconsistency is a serious problem to be avoided4. 4. Monetary policy should be forward looking5. 5. Accountability is a basic principle of democracy6. 6. Monetary policy should be concerned about output as well as price fluctuations
7. 7. The most serious economic downturns are associated with financial instability
Source: Mishkin, 2000
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16. Mishkin’s 7 Criteria For the 16. Mishkin’s 7 Criteria For the Role of a Central BankRole of a Central Bank
1.1. Price Stability should be the overriding, long runPrice Stability should be the overriding, long rungoal of monetary policygoal of monetary policy
2. An explicit nominal anchor should be adopted2. An explicit nominal anchor should be adopted
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17. Mishkin’s 7 Criteria (2)17. Mishkin’s 7 Criteria (2)
1. Price Stability should be the overriding, long run goal 1. Price Stability should be the overriding, long run goal of monetary policyof monetary policy2. An explicit nominal anchor should be adopted2. An explicit nominal anchor should be adopted
3. A Central Bank should be goal dependent3. A Central Bank should be goal dependent
4. A Central Bank should be instrument independent4. A Central Bank should be instrument independent
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18. Mishkin’s 7 Criteria (3)18. Mishkin’s 7 Criteria (3)
1. Price Stability should be the overriding, long run1. Price Stability should be the overriding, long rungoal of monetary policygoal of monetary policy2. An explicit nominal anchor should be adopted2. An explicit nominal anchor should be adopted3. A Central Bank should be goal dependent3. A Central Bank should be goal dependent4. A Central Bank should be instrument independent4. A Central Bank should be instrument independent
5. A Central Bank should be accountable5. A Central Bank should be accountable
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19. Mishkin’s 7 Criteria (4)19. Mishkin’s 7 Criteria (4)
1. Price Stability should be the overriding, long run goal1. Price Stability should be the overriding, long run goalof monetary policyof monetary policy2. An explicit nominal anchor should be adopted2. An explicit nominal anchor should be adopted3. A Central Bank should be goal dependent3. A Central Bank should be goal dependent4. A Central Bank should be instrument independent4. A Central Bank should be instrument independent5. A Central Bank should be accountable5. A Central Bank should be accountable
6. A Central Bank should stress transparency and 6. A Central Bank should stress transparency and communicationcommunication
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20. Mishkin’s 7 Criteria (5)20. Mishkin’s 7 Criteria (5)
1. Price Stability should be the overriding, long run1. Price Stability should be the overriding, long rungoal of monetary policygoal of monetary policy2. An explicit nominal anchor should be adopted2. An explicit nominal anchor should be adopted3. A Central Bank should be goal dependent3. A Central Bank should be goal dependent4. A Central Bank should be instrument independent4. A Central Bank should be instrument independent5. A Central Bank should be accountable5. A Central Bank should be accountable6. A Central Bank should stress transparency and 6. A Central Bank should stress transparency and
communicationcommunication
7. A Central Bank should also have the goal of 7. A Central Bank should also have the goal of financial stability.financial stability.
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21. …No ‘dull Governor’ either21. …No ‘dull Governor’ either
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22. Mishkin’s 7 Criteria plus 22. Mishkin’s 7 Criteria plus OneOne
8. A Central Bank should not seek8. A Central Bank should not seekresponsibilities which require different formsresponsibilities which require different formsof accountability and political dependenceof accountability and political dependence