"Research efforts and policy initiatives in the field of macroprudential regulation in my view are steps towards the correction of those flows. However, the construction of the viable and sustainable constitution of money consistent with a financial system which is highly sophisticated and with globalization requires probably further and more radical steps than the one that our goal today under the name of macroprudential regulation. This is a summary and I will develop my argument by first describing what I would call the old concept of central banking, then describe what I could name as the deconstruction of that concept. Third, I will briefly lead that through the crisis and finally say something about possible reconstruction.
So the elements of the old construct, the key elements are the following: First, central banks had a three-fold or triadic mandate which can be related to the three classic functions of money. They have a mandate in the field of price ability through the conduct of monetary policy and this can be related to the numeral function of money. They have paid a function in the field of financial stability, supervision of banks and these can be related to the store value of money, and they had a function in the payment system and this, of course, relates to the medium of the exchange function of money.
The essence of money is to perform these three functions which are inseparable and in my view equally inseparable where the three functions in the institution of central banks. A second element was the existence of an international anchor or a super-national anchor which put limits to the extent which money could be manipulated. That anchor was a commodity, it was gold; but conceptually, it could also be a different type of anchor. The essence is it was an international one that went beyond the sphere of exclusive influence of nation states.
The third element was the definition of the mandate of central banks in rather loose terms. If you read the statutes of the legislation of central banks prior to the wave of reforms of the last 30 years, the mandate of the central bank was tainted in very generic terms like looking after the currency, having some currency, safeguard the currency, notions like this. And the fourth element, the last was what I could call a single jurisdiction or monoline jurisdiction. I mean by this that in that old construct the debtor, the creditor, the intermediary, the currency, the legislation, the central bank all were belonging to the same, within the same perimeter of the nation state.
It took about a century for this construct to take shape. It began with the event of paper currency. It went on with the event of commercial bank money. It originates from the medium of exchange function of money with new ways to organize monetary exchanges. It developed into a banking supervision function, not on the basis of any specific mandate, but simply on the basis of a ‘know your client/know your customer’ type of need for the central bank, which was the bank operating with other banks and needed to know how sound their clients were..."
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