1、Challenges for Central Banks in the Future members: 錢芊 胡建明 馬燕 王江城 湯玲利What is the Central Bank A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often al

2、so oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on printing the national currency, which usually serves as the nations legal tender. Examples include the Bank of England, , the Federal Reserve of the United

3、 States, and the Peoples Bank of China.the Peoples Bank of Chinathe Federal Reserve of the United Statesthe European Central Bankthe Bank of EnglandBank of JapanThe primary function of a central bank The primary function of a central bank is to provide the nations money supply, but more active dutie

4、s include controlling interest rates, and acting as a lender of last resort to the banking sector during times of financial crisis . It may also have supervisory powers, intended to prevent banks and other financial institutions from reckless or fraudulent behaviour. Central banks in most developed

5、nations are independent in that they operate under rules designed to render them free from political interference.Challenges for Central Banks in the Future The key challenge facing central banks in the future will be to balance their three policy goals. The primary goal of the central bank is to pr

6、ovide price stability. This goal requires credibility to work. In other words, people need to believe that the central bank will tighten its policy if inflation threatens.Challenges for Central Banks in the Future The second policy goal is stability and growth of the real economy. Considerable evide

7、nce suggests that low inflation is associated with better growth and overall macroeconomic performance. The third policy goal is financial stability. Research has shown that it also will be improved in an environment of low inflation, although some economists argue that asset price booms are spawned

8、 in such an environment.Challenges for Central Banks in the Future A second challenge related to the first is for the central bank to keep abreast of financial innovations, which can derail financial stability . Innovations in the financial markets are a challenge to deal with, as they represent att

9、empts to circumvent regulation as well as to reduce transactions costs and enhance leverage .Challenges for Central Banks in the Future the recent subprime crisis exemplifies the danger ,as many problems were caused by derivatives created to package mortgages of dubious quality with sounder ones so

10、the instruments could be unloaded off the balance sheets of commercial and investment banks .this strategy ,designed to dissipate risk ,may have backfired because of the opacity of the new instrumentsChallenges for Central Banks in the Future A third challenge facing the Federal Reserve in particula

11、r is whether to adopt an explicit inflation targeting objective like the Bank of England, the Bank of Canada, and other central banks. Challenges for Central Banks in the Future The advantages of doing so are that is simplifies policy and markets it more transparent, which eases communication with t

12、he public and enhances credibility. However , it might be difficult to combine an explicit target with the feds dual mandate of price stability and high employment.Challenges for Central Banks in the Future A fourth challenge for all central banks is to account for globalization and other supply-sid

13、e developments, such as political instability and oil price and other shocks, which are outside of their control but which may affect global and domestic prices.Challenges for Central Banks in the Future The final challenge concerns whether implicit or explicit inflation targeting should be replaced

14、 with price-level targeting, whereby inflation would be kept at aero percent. Challenges for Central Banks in the Future Research has shown that a price level may be the superior target, because it avoids the problem of base drift, and it also has less long-run price uncertainty. The disadvantage is that recessionary shocks might cause a deflation, where the price level declines. This possibility should not be a problem if the nomina