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Central banking in challenging times

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  • Claudio Borio

Abstract

Since the Great Financial Crisis, central banks have been facing a triple challenge: economic, intellectual and institutional. The institutional challenge is that central bank independence - a valuable institution - has come in for greater criticism. This essay takes a historical perspective and draws parallels with the previous waxing and waning of central bank independence. It suggests that this institution is closely tied to globalisation, as both spring from the same fountainhead: an intellectual and political environment that supports an open system in which countries adhere to the same principles and governments remain at arm′s length from the functioning of a market economy. This suggests that the fortunes of independence are also tied to those of globalisation. The essay then proceeds to explore ways that can help safeguard independence. A key one is to narrow the growing expectations gap between what central banks are expected to deliver and what they can actually deliver. In that context, it also considers and dismisses the usefulness of recently proposed schemes that involve controlled deficit monetisation.

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  • Claudio Borio, 2019. "Central banking in challenging times," BIS Working Papers 829, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:829
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    References listed on IDEAS

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    2. Claudio Borio, 2020. "The Covid-19 economic crisis: dangerously unique," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 55(4), pages 181-190, October.
    3. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2020. "COVID-19 and the Future of Quantitative Easing in the Euro Area: Three Scenarios with a Trilemma," DEM Working Papers 2020/11, Department of Economics and Management.
    4. Gąsiorkiewicz Lech & Monkiewicz Jan & Monkiewicz Marek, 2020. "Technology-Driven Innovations in Financial Services: The Rise of Alternative Finance," Foundations of Management, Sciendo, vol. 12(1), pages 137-150, January.
    5. Júlia Király, 2020. "Hungary and Other Emerging EU Countries in the Financial Storm," Financial and Monetary Policy Studies, Springer, number 978-3-030-49544-2, January.
    6. Reinsberg, Bernhard & Kern, Andreas & Rau-Göhring, Matthias, 2021. "The political economy of IMF conditionality and central bank independence," European Journal of Political Economy, Elsevier, vol. 68(C).
    7. Zbigniew Polański & Mikołaj Szadkowski, 2021. "An accounting-based model of seigniorage, and recent monetary developments," Bank i Kredyt, Narodowy Bank Polski, vol. 52(5), pages 391-436.

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    More about this item

    Keywords

    central bank independence; globalisation; business cycles; fiscal dominance;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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