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Banking on the Future: The Fall and Rise of Central Banking

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Banking on the Future: The Fall and Rise of Central Banking

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The crash of 2008 revealed that the world's central banks had failed to offset the financial imbalances that led to the crisis, and lacked the tools to respond effectively. What lessons should central banks learn from the experience, and how, in a global financial system, should cooperation between them be enhanced? Banking on the Future provides a fascinating insider's look into how central banks have evolved and why they are critical to the functioning of market economies. The book asks whether, in light of the recent economic fallout, the central banking model needs radical reform.
Supported by interviews with leading central bankers from around the world, and informed by the latest academic research, Banking on the Future considers such current issues as the place of asset prices and credit growth in anti-inflation policy, the appropriate role for central banks in banking supervision, the ways in which central banks provide liquidity to markets, the efficiency and cost-effectiveness of central banks, the culture and individuals working in these institutions, as well as the particular issues facing emerging markets and Islamic finance. Howard Davies and David Green set out detailed policy recommendations, including a reformulation of monetary policy, better metrics for financial stability, closer links with regulators, and a stronger emphasis on international cooperation.
Exploring a crucial sector of the global economic system, Banking on the Future offers new ideas for restoring financial strength to the foundations of central banking.

Product Details

Author:	Howard Davies
Hardcover:	320 pages
Publisher:	Princeton University Press
Publication Date:	April 12, 2010
Language:	English
ISBN:	0691138648
Product Length:	1.0 inches
Product Width:	6.25 inches
Product Height:	9.25 inches
Product Weight:	1.3 pounds
Package Length:	9.29 inches
Package Width:	6.38 inches
Package Height:	1.34 inches
Package Weight:	1.28 pounds
Average Customer Rating:	based on 4 reviews

Customer Reviews

Average Customer Review: 4.0

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Most Helpful Customer Reviews

1 of 1 found the following review helpful:

A Glimpse into the Future of Central Banking Jan 05, 2011 By Serge J. Van Steenkiste
Howard Davies and David Green share with their readers the lessons that they have drawn from their long career in central banking. Their main theme turns around the deep flaws that the credit crisis has revealed in the modus operandi of central banks and what to do about these flaws. To their credit, Messrs. Davies and Green make topics such as the structure and status of central banks, monetary policy, financial stability, and market operations and financial infrastructure, accessible to readers who are not directly involved into central banking.

Messrs. Davies and Green make many comments on the Bank of England, the European Central Bank, and the U.S. Federal Reserve. Other central banks come into play only when their coverage is useful to better apprehend the workings of central banking worldwide. The chapter dedicated to central banking in the emerging markets is too general to be of much use to anyone interested in this topic.

The main value of this book probably lies in the chapter about asset prices. Messrs. Davies and Green rightly denounce the passive attitude of central banks towards asset price bubbles. The authors quote Steve Roach on this subject: "The lack of monetary discipline has become the hallmark of an unfettered globalization. Central banks have failed to provide a stable underpinning to world financial markets and to an increasingly asset-dependent global economy ... As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error." Therefore, Mr. Roach calls for a shift away from "one-dimensional fixation on CPI-based inflation." Unfortunately, some central bankers apparently have not learned much from the recent past when they do not spare any efforts to re-inflate asset price bubbles such as housing and the financial markets.

In summary, Messrs. Davies and Green succeed in their endeavor in making central banking accessible to an uninitiated audience eager to learn more about the impact of central banks' modus operandi on their (financial) well-being.

1 of 1 found the following review helpful:

Good overview of current state of central banking including stresses and need for reform Dec 12, 2010 By A. Menon
The past few years has obviously caused many people to fundamentally re-think the role of central banking. This book explores the current state of central banking, the reasons why it was in the state it was before the start of the crisis and the actions we must take as a function of the various shortcomings we have witnessed with the benefit of hindsight. This is written for both people with a curiousity for both perspective from central bankers and academic economists as well as those who are actively engaged in the field of central banking.

To give a quick overview the book begins in several chapters to describe in some detail the various forms of instability that can form within the macroeconomy and how central banks have and should consider their role with respect to the stresses which arise. In particular it is argued that during the Greenspan era the world gravitated towards almost pure focus on CPI as the variable that monetary policy should target. This happened at the expense of focusing on measures of financial stability and shadow banking systems arose without the eye of the central banks being as watchful as would have been prudent. The need for central banks to be watchful of a financial stability index was understood, but the conflicts of interest meant that such reviews were not able to be done without bias. The general lack of focus on asset prices and their impacts on both financial stability as well is described. The authors applaud the work of the BIS for being predictive and skeptics of the growth of some financial products is brought up.

The book also discusses much of the practical issues in central banking. The need to show confidence without doubt, guiding expectations, displaying strong will to achieve goals. It discusses the relationship between independence from government and effectiveness. It uses many studies to discuss many issues that arise from the value of independence to the issues of never-ending terms. It discusses the incentives at the individual level of central bankers. It discusses the ways in which central banks coordinate and keep in touch, what they do, what they could potentially do better in. It discusses some of the issues that exist in the ECB due to construction at the regional to the central level.

All in all this has a lot of topics it discusses. Most in finance and banking will have an interest in some, if not all of this. There are no solutions to set up a self-regulating system that protects our various monetary macroeconomic stability with probability one, but literature such as this helps articulate stresses that need to be addressed and proposes solutions that should be considered. It presents much food for thought. The title The Fall and Rise of Central banking is an apt one and we must spend the required time to figure out what needs to be re-legislated with respect to central banking mandates and how to set up a system given our knowledge that maximises our ability to be both more flexible and more durable in the future.

Banking on the Future May 01, 2012 By Rolf Dobelli "getAbstract"
After the 2008 financial crisis, the world's central banks had a lot of explaining to do. Housing prices had bubbled and burst, major financial institutions teetered (and some fell), and the global financial system came to a screeching halt. While central bankers were instrumental in preventing all-out economic Armageddon, none foresaw the magnitude of the crisis, nor were many armed with the right tools to fix it. Courtesy of their front-row seats at the parade of central banking's modern evolution, Bank of England veterans Howard Davies and David Green, present a thorough insider's parsing of the state of the field, and offer ideas for how the world's top bankers can better prepare for - and maybe even avert - the next crisis. The authors' subject matter is often prosaic, but they give it some much-needed livening up with their behind-the-scenes, sometimes gossipy, revelations about the personalities of the (almost all) men who helped keep the economic world spinning. getAbstract recommends their exposé to policy makers and bankers who want to take lessons from what went wrong and understand how to make it right.

The authors assume you know an awful lot Jul 26, 2011 By Graham H. Seibert
Do you know what it means to enlarge a central bank's balance sheet? Any old bank's balance sheet? The difference between fiscal and monetary policy? The definitions are not vastly complex, but they would have been very useful to the ininitiate who happened on this book. They make it clear that central bankers are a cliquish group who speak in their own shorthand, a jargon intended to convey little actual information, especially to outsiders. It would have been useful if the authors themselves took greater pains to bring the hoi polloi into this charmed circle.

When you get to the bottom line, central bankers can elect among several policy objectives: interest rate stability, acceptable rates of employment, and currency exchange rate stability among them. They have one (1) primary tool to achieve these objectives, monetary policy, which is to say, setting interest rates and reserve requirements.

It doesn't work. A mathematician would tell you that one independent variable cannot simultaneously determine three unrelated dependent variables. Something has to give. And it frequently does. Right now it is the Euro-denominated debt of the PIGS countries.

Worth slogging through, with a computer at hand so you can read the Wikipedia definitions of the various concepts being thrown around. It would have been helpful had the authors cribbed from Wikipedia for our benefit. They might even have done a better job.