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

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2. No dull Governor
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3. No dull Governor?
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4. Functions of Central Banks
Country Monetary Policy Bank Supervision
Note Issue
Part
US
UK
France
Germany
Small Part
Italy
Japan
Small Part
Canada
ECB

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5. Central Bankers/100,000 inhabitants
Source The Economist, 2005
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6. Central Bank Efficiency
Source Central Banking Publications, 2005
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7. Central Bankers Salaries (000)
A. Fazio?
J-C Trichet
Mervyn King
I. Macfarlane
A. Weber
A. Greenspan
Source FT, 28/10/2005 (CentralBankNet.com for
Fazios unconfirmed 2003 salary)
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8. Four Trends
1. Inflation targets
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9. Four Trends
1. Inflation targets
2. Changes in Financial Supervision
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10. Countries with Integrated Regulators
1986
1990
1991
1998
2000
2001
2002
2004
Kredittilsynet (Norway - March 1986)
Finanstilsynet (Denmark - January 1990)
Finansinspektionen (Sweden - July 1991)
Financial Supervisory Commission (Korea - April
1998)
Fjármálaeftirlitið (FME) (Iceland - June 1998)
Financial Services Agency (Japan - July 2000)
Finantsinspektioon (Estonia - May 2001)
FSA fully integrated in 2001, but has existed
since October 1997
FSA (UK - December 2001)
Finanzmarktaufsicht (Austria - April 2002)
BaFin (Germany - May 2002)
CBFA (Belgium - August 2002)
Agency of Financial Supervision (Kazakhstan -
April 2004)
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11. How the Centres Rank in Terms of their
Regulatory Environment
Source Z/Yen, 2005
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12. Four Trends
1. Inflation targets
2. Changes in Financial Supervision
3. Financial Stability
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13. Bank of England Financial 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 Trends
1. Inflation targets
2. Changes in Financial Supervision
3. Financial Stability
4. Public Expectations
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15. Guiding Principles for Central Banks
1. Price stability provides substantial benefits
2. Fiscal policy should be aligned with monetary
policy
3. Time inconsistency is a serious problem to be
avoided
4. Monetary policy should be forward looking
5. Accountability is a basic principle of
democracy
6. Monetary policy should be concerned about
output as well as price fluctuations
7. The most serious economic downturns are
associated with financial instability
Source Mishkin, 2000
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16. Mishkins 7 Criteria For the Role of a
Central Bank

• Price Stability should be the overriding, long
  run
• goal of monetary policy

2. An explicit nominal anchor should be adopted
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17. Mishkins 7 Criteria (2)
1. Price Stability should be the overriding, long
run goal of monetary policy 2. An explicit
nominal anchor should be adopted 3. A Central
Bank should be goal dependent 4. A Central Bank
should be instrument independent
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18. Mishkins 7 Criteria (3)
1. Price Stability should be the overriding, long
run goal of monetary policy 2. An explicit
nominal anchor should be adopted 3. A Central
Bank should be goal dependent 4. A Central Bank
should be instrument independent 5. A Central
Bank should be accountable
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19. Mishkins 7 Criteria (4)
1. Price Stability should be the overriding, long
run goal of monetary policy 2. An explicit
nominal anchor should be adopted 3. A Central
Bank should be goal dependent 4. A Central Bank
should be instrument independent 5. A Central
Bank should be accountable 6. A Central Bank
should stress transparency and communication
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20. Mishkins 7 Criteria (5)
1. Price Stability should be the overriding, long
run goal of monetary policy 2. An explicit
nominal anchor should be adopted 3. A Central
Bank should be goal dependent 4. A Central Bank
should be instrument independent 5. A Central
Bank should be accountable 6. A Central Bank
should stress transparency and communication 7.
A Central Bank should also have the goal of
financial stability.
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21. No dull Governor either
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22. Mishkins 7 Criteria plus One
8. A Central Bank should not seek responsibilities
which require different forms of accountability
and political dependence