Abstract

New Forms of Financing from the Central Bank's Point of View

In various respects, central banks regard the latest developments of financial markets as a challenge. It is possible to distinguish between the information, the surveillance, the system and the efficiency aspect of monetary policy. If bank supervisors ensure that nothing can happen to individual banks, there is not anything that could happen to the system, one should think. But difficulties may stem from the system which bank supervisors – they focus their attention on primarily individual units -- may find hard to control. Financial innovations threaten the efficiency of monetary policy, first, by questioning the reserve requirement tool when – for instance – old monetary forms are displaced by new ones for which minimum reserve requirements do not exist. The central bank’s target notions may be hit even harder by shifts in the money creation process. But their ability to lay down the conditions under which they make their money available is not put into doubt by financial innovations, although it would be fair to question the value of this ability when the reserve requirement has been put into question and the central bank has lost its target notions. On this point it is t0 be mentioned that it is the central banks’ very own task to shape their tools so as to give rise to predictable reserve requirements. Likewise, the central banks are responsible for analyzing the interrelations between monetary developments and the real objectives of economic policy in a way that allows them to come as close to real economic policy goals as possible. Moreover, financial innovations tend to restrict the scope for autonomous national monetary policies. The answer to this appears to be obvious: improved international coordination of economic policies. It is impossible to accept or get involved in the internationalization of financial markets on a major scale and still think that this need not have consequences for national monetary policies.