Washington Observation: Why Does A Country Need A Central Bank?

Why

The federal reserve system was created by the congressional act of 1913.

Then, during the first World War,

Canada has no central bank, and its banking system has been weakened in the great depression.

Unlike thousands of small and functional banks that exist in the United States, only a few banks in Canada have branches throughout the country, which can withstand local withdrawals.

Even during the great depression, the failure of the banking industry in the United States was concentrated in a few areas.

As for the Central Bank of Canada, the Bank of Canada was built in 1935 under the pressure of other parts of the world. There was no central bank.

In short, the central bank is neither sufficient nor necessary for the development of modern economy and financial system.

People now have a lot of suggestions for reforming the Federal Reserve, but there is no consensus about the rationality of the system.

Policymakers debated the Federal Reserve's dual goal of price stability and full employment. Panth, a congressman in Indiana, has introduced a bill to revise the Federal Reserve's bill as long as the Federal Reserve has a target: price stability.

Many people believe that the dual goal is to give the fed an impossible task: to use one policy tool to achieve the two best tasks at the same time.

It is also unclear whether the central bank has the ability to achieve full employment.

But even maintaining price stability is not the initial function of the Fed.

In addition to some economists, few believed that the Fed's function was to maintain price stability.

You know that Kim has maintained price stability for a long time, and the Federal Reserve's work at that time was to maintain the gold standard.

In nineteenth Century, the famous British economist and journalist baght once described London Financial Center: the discussion of money market is the practice of studying central bank.

Baght observed that the existence of the Bank of England made money storage centralization.

He himself prefers banks that are self financing.

These banks hold short-term assets that can be marketed immediately.

Baght's goal is to design a central bank policy so that commercial banks will operate in normal times without a central bank.

If there is a liquidity crisis, commercial banks will seek support from the Bank of England.

This last straw is a common function of the Federal Reserve and other central banks today.

This function provides the Fed with a possibility that the Fed can adopt flexible monetary policy, and its money supply can be increased or contracted.

The first round of quantitative easing in the Fed appeared in the autumn of 2008, in response to the liquidity crisis after the collapse of Lehman Brothers in September 15th.

We do not know how to continue this practice after the first round of quantitative easing in 2008.

It is very likely that the first round of quantitative easing is too long, and the quantity is too large.

The Fed also forgot about the principle of borrowing put forward by baght: the central bank should use punitive interest rates to provide loans to banks with good assets.

This principle ensures that emergency loans will not become subsidized projects.

From this perspective, I think economists will discuss whether the financing plan is reasonable in 2008.

Today, there is no crisis of liquidation, and there is no reason to continue with this lender of last resort.

But we will also face another problem: there may be a large number of unrecognized losses related to the loan crisis and other unwise loans in the balance sheet of the banks.

These losses mean that these institutions are actually short of capital, which is obviously not a short-term liquidity problem.

The Fed's critics are increasingly finding that the Fed is actually an unelected financial institution.

Its aid to specific institutions constituted the allocation of credit and the strange large-scale bank financing action.

Low interest rate policy is an integral part of the bank's support plan.

At the same time, because there is no federal reserve policy to repair the banking system, the economy is worsening.

It was the failure to repair the banking industry, rather than the threat of deflation that did not exist, which led to the so-called lost ten years in Japan in 90s.

A large, non recognized deficit bank will lose its old losses and new loans will cease.

Today, regulators should ask banks to record their assets and refinance, rather than extending financing plans to small and medium-sized banks.

Now, countless banks are seeking to raise their shares, but now it is time for the banks to increase their capital when they are not expanding their shares.

At the same time, the Fed must stop its fiscal policy in the name of monetary policy.

It is a terrible idea for the fed to raise money for the declining banks with taxpayers' money.

But if Parliament does such a thing, it can at least carry out democratic discussions and open operations.

As long as the Federal Reserve adheres to the traditional monetary policy, the Federal Reserve can maintain its independence.

But if it behaves like a fiscal authority, ordinary citizens and their representatives will ask: why do we need the central bank?