IDEAS home Printed from https://ideas.repec.org/p/nbp/nbpmis/33.html
   My bibliography  Save this paper

The Future of Central Banking in the Changing Financial Environment

Author

Abstract

During the last decades there were deep technology-driven changes in financial systems of many countries. The result was the decreasing demand for cash and commercial banks’ liquid reserves. The decreasing demand for central bank money has changed the operational side of the monetary policy. The maturities of open market operations have been shortened substantially. The reserve requirements were lowered or eliminated. The changes lead to a decrease in the volume of the monetary base, but the demand for central bank money will not vanish. Even with zero reserve ratio commercial banks will keep cash balances with central banks to settle their transactions. Thus, there will be a demand for banks’ liquid reserves and cash. Despite the decreasing demand for the monetary base, the central banks ability to influence the level of short-term interest rates will not be impaired, because central banks will continue to play the role of clearing houses for the banking systems. The central bank ability to conduct monetary policy does not depend on the volume of the monetary base, but on the demand for interbank settlements made by central bank. This is not the size of the monetary base either, that decides about the effectiveness of the monetary policy. Monetary authorities can influence interest rates via the payment system, which is typically based in central bank. The consequence of the decrease in the monetary base will be a fall in seigniorage income, but this will not impair central banks ability to conduct monetary policy. Interbank settlements must be located in central banks due to their reliability and the ability to play the role of lenders of last resort. As the central banks will stay as the institutions refinancing the payment system, they will decide about the level of short-term interest rates. Electronic money will not change the situation, because if this kind of money is to be widely accepted, it has to be exchanged into central bank money.

Suggested Citation

  • Dobieslaw Tymoczko, 2005. "The Future of Central Banking in the Changing Financial Environment," NBP Working Papers 33, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:33
    as

    Download full text from publisher

    File URL: https://static.nbp.pl/publikacje/materialy-i-studia/33_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Manfred J. M. Neumann, 1996. "A Comparative Study of Seigniorage: Japan and Germany," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 104-142, July.
    2. Bennett T. McCallum, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-286, July.
    3. Corrinne Ho, 2002. "A survey of the institutional and operational aspects of modern-day currency boards," BIS Working Papers 110, Bank for International Settlements.
    4. Antoine Martin, 2002. "Reconciling Bagehot with the Fed's response to Sept. 11," Research Working Paper RWP 02-10, Federal Reserve Bank of Kansas City.
    5. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
    6. John Hawkins, 2001. "Electronic finance and monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Electronic finance: a new perspective and challenges, volume 7, pages 98-105, Bank for International Settlements.
    7. Bank for International Settlements, 2001. "Electronic finance: a new perspective and challenges," BIS Papers, Bank for International Settlements, number 07.
    8. McCallum, Bennett T, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-286, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bennett T. McCallum, 2003. "Monetary Policy in Economies with Little or No Money," NBER Working Papers 9838, National Bureau of Economic Research, Inc.
    2. Jan Marc Berk, 2002. "New Economy, Old Central Banks?," Tinbergen Institute Discussion Papers 02-087/2, Tinbergen Institute, revised 01 Aug 2002.
    3. Haydar Akyazi & Seyfettin Artan, 2006. "Reflections of the New Economy on the Monetary Policy and Central Banking," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Human and Economic Resources, pages 373-387, Izmir University of Economics.
    4. Wiliam Branch & John Carlson & George W. Evans & Bruce McGough, 2006. "Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy," University of Oregon Economics Department Working Papers 2006-6, University of Oregon Economics Department.
    5. Marc-Alexandre Sénégas, 2002. "La politique monétaire face à l'incertitude : un survol méthodologique des contributions relatives à la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 177-200.
    6. William A. Branch & John Carlson & George W. Evans & Bruce McGough, 2009. "Monetary Policy, Endogenous Inattention and the Volatility Trade‐off," Economic Journal, Royal Economic Society, vol. 119(534), pages 123-157, January.
    7. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    8. Glenn Otto & Graham Voss, 2009. "Strict and Flexible Inflation Forecast Targets: An Empirical Investigation," Department Discussion Papers 0902, Department of Economics, University of Victoria.
    9. Dionisio Dias Carneiro & Pedro Garcia Duarte, 2001. "Inércia de juros e regras de Taylor: Explorando as funções de resposta a impulso em um modelo de equilíbrio geral com parâmetros estilizados para o Brazil," Textos para discussão 450, Department of Economics PUC-Rio (Brazil).
    10. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    11. Wasim Shahid Malik & Ather Maqsood Ahmed, 2010. "Taylor Rule and the Macroeconomic Performance in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(1), pages 37-56.
    12. Mr. Helmut Wagner, 2001. "Implications of Globalization for Monetary Policy," IMF Working Papers 2001/184, International Monetary Fund.
    13. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.
    14. Mohsin S. Khan, 2011. "The Design and Effects of Monetary Policy in Sub-Saharan African Countries-super- †," Journal of African Economies, Centre for the Study of African Economies, vol. 20(suppl_2), pages -35, May.
    15. Romar Correa, 2008. "Demand deposit banking and open market operations," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(1), pages 67-73.
    16. Michael Woodford, 2000. "Monetary Policy in a World Without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    17. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    18. Robert Tchaidze & Alina Carare, 2004. "The Use and Abuse of Taylor Rules: How precisely can we estimate them?," Econometric Society 2004 Latin American Meetings 132, Econometric Society.
    19. Mr. Mohsin S. Khan, 2003. "Current Issues in the Design and Conduct of Monetary Policy," IMF Working Papers 2003/056, International Monetary Fund.
    20. Mr. Evan C Tanner & Mr. Kevin J Carey, 2005. "The Perils of Tax Smoothing: Sustainable Fiscal Policy with Random Shocks to Permanent Output," IMF Working Papers 2005/207, International Monetary Fund.

    More about this item

    Keywords

    monetary policy; monetary base; interbank settlements;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpmis:33. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jakub Growiec (email available below). General contact details of provider: https://edirc.repec.org/data/nbpgvpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.