On the 13th of March (IEA, London) I had the pleasure to participate in the launch of the new MSc in Money, Banking and Central Banking (University of Buckingham, with the collaboration of the Institute of International Monetary Research), starting in September 2017; and I did it with two of the professors who will be teaching in the MSc, indeed two excellent and very well-known experts in the field: Professors Geoffrey Wood and Tim Congdon. I have known them both for long and shared research projects and co-authored works in money and central banking; and it was a privilege for me to have the chance to introduce the new MSc, as well as to engage in a fascinating dialogue with them on very topical and key questions in monetary economics in our days: amongst others, ‘How is money determined? And how does this affect the economy?’; ‘Is a fractional reserve banking system inherently fragile?’; ‘Does the size of central banks’ balance sheet matter?’; ‘If we opt for inflation targeting as a policy strategy, which should be the variable to measure and target inflation?’; ‘Why the obsession amongst economists and academics with interest rates, and the disregard of money?”; ‘Who is to blame for the Global Financial Crisis, banks or regulators?’; ‘Does tougher bank regulation result in saver banks?’; ‘Is the US Fed conducting Quantitative Tightening in the last few months?’.
You can find the video with the full event here; with the presentation of the MSc in Money, Banking and Central Banking up to minute 9:20 and the discussion on the topics mentioned above onwards. Several lessons can be learned from our discussion, and however evident they may sound, academics and policy-makers should be reminded of them again and again:
- Inflation and deflation are monetary phenomena over the medium and long term.
- Central banks‘ main missions are to preserve the purchasing power of the currency and maintain financial stability; and thus they should have never disregarded the analysis of money growth and its impact on prices and nominal income in the years running up to the Global Financial Crisis.
- A central bank acting as the lender of last resort of the banking sector does not mean rescuing every bank in trouble. Broke banks need to fail to preserve the stability of the banking system over the long term.
- The analysis of both the composition and the changes in central banks’ balance sheets is key to assess monetary conditions in the economy and ultimately make policy prescriptions.
- The analysis of the central banks’ decisions and operations cannot be done properly without the study of the relevant historical precedents: to learn monetary and central banking history is vital to understand current policies monetary questions.
- Tighter bank regulation, such as Basel III new liquidity ratios and the much higher capital ratios announced in the midst of the Global Financial Crisis, resulted in a greater contraction in the amount of money, and so it had even greater deflationary effects and worsened the crisis.
These are indeed key lessons and principles to apply should we want to achieve both monetary and financial stability over the medium and long term.
I hope you enjoy the discussion as much as I did. As ever, comments and feedback will be most welcome.
Apply for the MSc here!