Abstract
Advanced economy central banks face four daunting challenges. First, relearning how to control inflation when some of the main drivers of inflation are unlike anything experienced since the oil price shocks of the 1970s. Second, how to discharge their much-enhanced financial stability roles as lender of last resort and market maker of last resort domestically and, for the Fed and the ECB, internationally. Third, how to create and operate a central bank digital currency and how to address the financial stability challenges created by the fintech and crypto revolutions. Fourth, how to avoid fiscal dominance or fiscal capture and reconcile central bank operational independence in the pursuit of price stability with the central bank’s inescapable role as a fiscal and financial agent of the state. This paper addresses the first and the fourth of these issues.
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Notes
- 1.
See, for example, the data on the labour force participation rate, the employment-population ratio, job openings, unfilled job vacancies, the number unemployed, the quit rate, and the rate of layoffs and discharges.
- 2.
See Buiter (2021b) about the undesirability of FAIT.
- 3.
In the US, each of the 12 Reserve Banks is separately incorporated with a 9-member board of directors. Commercial banks that are members of the Federal Reserve System must hold (non-tradable) stock in their District’s Reserve Bank. These “stocks” are rather like non-voting preference shares. The Federal Reserve Board of Governors funds its operations by assessing the 12 Federal Reserve Banks. The Fed is quite explicit that “The Federal Reserve System is not “owned” by anyone.” The Board of Governors is an agency of the US Federal Government and reports to and is directly accountable to the US Congress. The Reserve Banks are legally required to transfer net earnings to the US Treasury, after paying for the expenses of the Reserve Banks and the Board, the legally required dividend payments (currently 6% on the paid-in capital stock), while maintaining a limited balance in a surplus fund. The Bank of Japan is partly privately owned; its stock is traded over the counter and has a stock number. The Bank of England is a joint stock company owned 100% by the UK Treasury.
- 4.
- 5.
See IMF (2022b).
- 6.
The fact that the OMT has not been activated can also be viewed as evidence of the credibility of the ECB’s commitment to do whatever it takes to safeguard the monetary union (as per Mario Draghi’s famous words on July 26, 2012).
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Buiter, W.H. (2023). Relearning Inflation Control in the Post-Covid Era. In: Aliber, R.Z., Gudmundsson, M., Zoega, G. (eds) Fault Lines After COVID-19. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-26482-5_12
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