TU STUDENTS INVITED TO PARTICIPATE IN FREE 29 MAY ZOOM WEBINAR ON CENTRAL BANKS IN THE 21ST CENTURY

Thammasat University students interested in economics, business, finance, banking, political science, government, and related subjects may find it useful to participate in a free 29 May Zoom webinar on Central Banks in the 21st Century.

The event, on Wednesday, 29 May 2024 at 1pm Bangkok time, is presented by Tokyo College, The University of Tokyo, Japan.

The TU Library collection includes several books about different aspects of central banks.

According to the event webpage:

Abstract

Central banks, and central bankers, stand at a crossroads. They face five major forks in the 21st century requiring careful reflection: (1) the re-emergence of inflation and uncertainties; (2) climate change; (3) inequality; (4) digital financial innovation; and (5) artificial intelligence. Modern central banks have always strengthened their analytical thinking when facing challenges in the past, balancing risks properly and choosing the best path. Now, these new issues imply that central banks will have to carefully identify and analyze their challenging implications.

Lecturer

Luiz Awazu PEREIRA DA SILVA

(Visiting Professor, Tokyo College, The University of Tokyo; Former Deputy General Manager of the Bank for International Settlements (BIS); Former Deputy Governor of the Central Bank of Brazil)

Commentator

AOKI Kosuke

(Professor, Graduate School of Economics, The University of Tokyo)

Moderator

Takeo HOSHI

(Director, Tokyo College, The University of Tokyo)

A central bank, reserve bank, national bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base. Many central banks also have supervisory or regulatory powers to ensure the stability of commercial banks in their jurisdiction, to prevent bank runs, and in some cases also to enforce policies on financial consumer protection and against bank fraud, money laundering, or terrorism financing.

In February 2024, the website of the World Economic Forum posted an article,

What levers might central banks pull for the economy in 2024? Some excerpts follow:

There’s a widespread expectation for an improvement in the inflation outlook for 2024, according to the World Economic Forum’s Chief Economists survey.

That should give central bank policy-makers more room to decide on policy.

Even so, many are likely to wait for stronger evidence that inflation rates are moderating before choosing to lower their benchmark rates.

Central banks around the world are facing persistent headwinds and volatility in 2024.

That’s according to the World Economic Forum’s January 2024 Chief Economists Outlook, which also pointed to some positives including a moderation in inflationary pressures and advances in artificial intelligence (AI). And all these factors are in the mix for central bank policy-makers as they decide what to do in the coming months.

“Global inflation continues to ease,” the Forum report says, “propping expectations of mild ebbing in interest rates this year.”

The global headline rates of inflation are projected to reach 4.8%, a sharp decline from 5.9% in 2023 and 9.2% in 2022. Core inflation – a gauge that strips out often volatile factors like food and energy – is decelerating as well, and is forecast to reach 4.5% in 2024. […]

Inflation outlook is key

There’s a widespread expectation for an improvement in the inflation outlook for 2024, with the chief economists’ survey showing that expectations for high inflation are being pared back across all regions. […]

In the latest survey the majority of chief economists also expect labour markets to loosen in advanced economies – a higher number than in the September report. They also said financial conditions are likely to loosen as well in the advanced economies. […]

“The policy stance remains cautious on both sides of the Atlantic as policy-makers navigate challenging domestic and global conditions,” the report says. “The unusually high degree of uncertainty over economic and financial developments means the timing and extent of easing will pose a dilemma for policy-makers that continue to navigate trade-offs between tightening too much and too little.” […]

In May 2024, an article was posted on the website of the Official Monetary and Financial Institutions Forum (OMFIF), an independent think tank for central banking, economic policy and public investment:

Beware China’s attempt to erode central bank independence

Central banks should not become just another government department

Central banks’ independence from government enables them to fulfil their mandates of ensuring monetary and financial stability. But, in recent years, central banks have been subjected to mandate creep. The People’s Bank of China is one of the latest to face such pressure from its state.

The mandate creep for central banks started with an explicit financial stability mandate beyond the regulation and supervision of the banking system. How can a central bank ensure financial stability when markets have taken over the leading role of financial intermediation? The 2008 financial crisis was a case in point when securitisation moved risks out of banks to investors. […]

The political masters of central banks are increasingly frustrated at their narrow mandates. The criticism ranges from French President Emmanuel Macron requesting more support for growth and environment from the European Central Bank, to President Xi Jinping demanding more support from the People’s Bank of China for domestic growth and the country’s development priorities, such as the digital economy and countering possible economic sanctions by western countries.

CCP is encroaching on China’s central bank

In 1995, the Law of the People’s Republic of China on the People’s Bank of China formed the basis for the modern central bank. It is respected among peer central banks, including those meeting at the Bank for International Settlements and the International Monetary Fund. The law defined the role of the state council and made clear that the central bank does not act as an agent of government.

Earlier this year, sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference proposed a revision to this law. Following the Central Economic Work Conference last December, Xi wants a financial system with Chinese characteristics. The PBoC’s independence is already heavily constrained by the state in comparison with peer central banks in the West, but these proposals mean subjecting the financial system even further to the guidance of the Chinese Communist Party, in line with other government areas.

Xi later proposed a more active monetary policy with open market operations to support growth. China has been cautious in following the QE of western counterparts.

These new proposals would subject the PBoC to greater dominance by the state and, more worryingly, by the CCP. The world’s central banking community should oppose such blatant erosion of central bank independence as well as other mandate creeps.

There are good reasons why the global central banking community should oppose the mission creep. First, though central banks have huge power, their leaders are not accountable to the general population, but rather to their political masters. Second, once you start mission creep – such as increasing the responsibilities of central banks – where does it end? Third, the basic job of central banks is complicated enough. Low interest rates caused asset prices to soar while increased borrowing was the only rational thing to do. By raising interest rates, central banks have targeted inflation but compromised financial stability as banks saw their assets depreciating and debtors saw their debt servicing capacity eroded.

Central banks should return to their basic functions and do them well, or risk being turned into just another department of the government.

(All images courtesy of Wikimedia Commons)