Tiền tệ ngân hàng FTU - Lý thuyết chương 8

Content • • • • • • • • • • • • • Lecture 8 Central Banks Introduction Central bank activities Stability: The primary objective of all central banks Low and stable inflation High and stable real growth Financial system stability Interest rate and exchange rate stability Meeting the challenge: creating a successful central bank Central bank independence Central bank accountability and transparency Decision making by committee The policy framework, policy trade-offs, and credibility Central banks and fiscal policies 1 Readings 2 Introduction • Mishkin (2021), The Economics of Money, Banking, and Financial Markets, 13th edition, Pearson, Chapter 14 • Cecchetti and Schoenholtz (2012), Money, Banking, and Financial Markets, 4th edition, McGraw-Hill, Chapters 15 3 • Beginning in the summer of 2007, the most severe and persistent financial crisis since the Great Depression shook intermediaries, markets, and economies around the globe. • Central banks neither foresaw nor prevented the crisis of 2007–2009. • However, the world’s leading central banks played a key role in bringing the financial system and the economy back to safe harbor after the peak of the financial crisis in 2008. • They acted in unprecedented fashion to prevent the financial system from capsizing and, over time, to restore financial and economic stability. 4 Introduction Introduction • This lecture begins to explain the role of central banks in our economic and financial system. • It will describe the origins of modern central banking. • It will examine the complexities policymakers now face in meeting their responsibilities. • It will highlight a central question that has become politically controversial: what is the proper relationship between a central bank and the government? • Central banks do not act only during times of crisis • Their work is vital to the day-to-day operation of any modern economy • Today there are roughly 170 central banks in the world employing over 350,000 people • Most people only have a vague idea of what central banks do 5 The Basics: How Central Banks Originated and Their Role Today 6 The Government’s Bank • The central bank started out as the government’s bank and over the years added various other functions. • A modern central bank not only manages the government’s finances but provides an array of services to commercial banks. • King William III of England created the Bank of England to finance wars. • Napoleon Bonaparte did it in an effort to stabilize his country’s economic and financial system. • These examples are more an exception because central banking is largely a 20th century phenomenon. 7 8 The Government’s Bank The Government’s Bank • As the government’s bank, the central bank has a privileged position: • In 1900, only 18 countries had a central bank. • The U.S. Federal Reserve began operation in 1914. • As the importance of a government and the financial system grew, the need for a central bank grew along with it. – It has the monopoly on the issuance of currency. • The central bank creates money. • Early central banks kept sufficient reserves to redeem their notes in gold. • Today, central banks have the sole legal authority to issue money. 9 The Government’s Bank 10 The Government’s Bank • • The central bank can control the availability of money and credit in a country's economy. • Most central banks go about this by adjusting short-term interest rates: monetary policy. Why would a country want to have its own monetary policy? 1. At its most basic level, printing money is a very profitable business. • • A bill only costs a few cents to print. The cost of printing is far less than the face value, this results in a special profit called seignorage 2. Government officials also know that losing control of the printing presses means losing control of inflation. – They use it to stabilize economic growth and information. • 11 A high rate of money growth creates a high inflation rate. 12 The Government’s Bank • The primary reason for a country to create its own central bank, then, is to ensure control over its currency. • Counterfeiting has been used as a weapon in wartime. • In the European Monetary Union, 16 European countries have ceded their right to conduct independent monetary policy to the European Central Bank (ECB). • Without a stable currency it is difficult for an economy to run efficiently. • This is why preserving the value of a nation’s currency is one of the central bank’s most important responsibilities. – The goal was to destabilize the enemy’s currency. – Giving the currency-printing monopoly to someone else could be disastrous. – This was part of a broader move toward economic integration. 13 The Banker’s Bank 14 The Banker’s Bank • The political backing of the government, together with their sizeable gold reserve, made early central banks the biggest and most reliable banks around. – The notes issued by the central bank were viewed as safer than those of smaller banks. • The safety and convenience quickly persuaded most other banks to hold deposits at the central bank as well. 15 • As the banker’s bank, the central bank took on the roles it plays today: 1. To provide loans during times of financial stress, 2. To manage the payments system, and 3. To oversee commercial banks and the financial system. • The ability to create money means that the central bank can make loans even when no one else can. 16 The Banker’s Bank The Banker’s Bank • Every country needs a secure and efficient payments system. • No bank, no matter how well managed, can withstand a run. • To stave off such a crisis, the central bank can lend reserves or currency to sounds banks. • By ensuring that sound banks and financial institutions can continue to operate, the central bank makes the whole financial system more stable. – Financial institutions need a cheap and reliable way to transfer funds to one another. • The fact that all banks have account at the central bank makes the it the natural place for interbank payments to be settled. • In 2009, an average of more than $2.5 trillion per day was transferred over Fedwire. 17 The Banker’s Bank 18 The Banker’s Bank • Finally, someone has to watch over commercial banks and nonbank financial institutions so that savers and investors can be confident these institutions are sound. • Those who monitor the financial system must have sensitive information. • Government examiners and supervisors are the only ones who can handle such information without conflict of interest. 19 • As the government’s bank and the banker’s bank, central banks are the biggest, most powerful players in a country’s financial and economic system. • However, an institution with the power to ensure that the economic and financial systems run smoothly also has the power to create problems. 20 The Functions of a Modern Central Bank The Banker’s Bank • It is essential that we understand what a central bank is not. • It does not control securities markets, though it may monitor and participate in bond and stock markets. • It does not control the government’s budget. – That is determined by Congress and the president through fiscal policy. – The Fed only acts as the Treasury’s bank. 21 FYI History of the Major Central Banks UK • The Bank of England was founded in 1694. The bank was set up to help the government of William and Mary raise money for the wars against the French • From about 1715 onwards, the bank was regularly raising money for the government by the sales of government bonds • The Bank Charter Act of 1844 effectively gave the bank a monopoly on the issue of new banknotes • Baring Bros hit trouble in 1890 and the Bank of England rescued the bank • Before 1998, the bank was an arm of the government and not independent. This finally changed in 1998 • The Bank of England Act of June 1998 set the statutory basis for the bank’s new Monetary Policy Committee and transfer of 23 supervision to the Financial Services Authority 15-22 FYI History of the Major Central Banks France • The Bank of France was founded by Napoleon in 1800 to restore stability, especially in banknotes, after the turbulent years of the French Revolution • A monopoly over banknote issue was given in 1848 • It was nationalised in 1945 and an Act of 1973 redefined its powers and organization • The bank was not originally independent of the government but was given independence in 1993, anticipating the proposed European Central Bank (ECB) • Many of its powers were passed to the ECB when it was set up in 1999 24