More than two years ago, seeking to revive a moribund economy, the European Central Bank (ECB) embarked on a new monetary policy measure: charging interest on excess liquidity that banks held at the central bank. The move complemented a series of other easing measures aimed at bringing inflation back to the ECB’s price stability objective of below, but close to, two percent over the medium term. Continue reading “The ECB’s Negative Rate Policy Has Been Effective but Faces Limits” »
Today at the IMF, the Governor of the People's Bank of China, Zhou Xiaochuan, gave the Michel Camdessus Central Banking Lecture in Washington, D.C.
With China’s economy undergoing a transition, Governor Zhou spoke about managing monetary policy with multiple objectives, and the independence of central banks.
“For central banks with a single objective, it is relatively easy to be independent. However, if a central bank has multiple objectives, it may be harder to be immune from the political reality.”
Zhou also discussed the role of central banks in economies undergoing a transition to a market economy.
“If central banks do not promote financial reforms or development of financial markets, there would be no healthy financial institutions or market mechanisms, let alone smooth transmission of monetary policy. Furthermore, like other emerging market economies, transition economies have a low level of development and hoped to make up for the 'lost decades'.”
You can watch Governor Zhou’s speech and his discussion with IMF Managing Director Christine Lagarde.
Price stability has long been enshrined as the main objective of monetary policy, and, with that, gone are the days of high and volatile inflation. Monetary stability seems almost a given today. However, the global financial crisis revealed that, by focusing on price stability, monetary policy frameworks might not always sound the alarm when financial stability comes under threat. In his latest blog, José Viñals reflects on the monetary policy lessons that emerged from the global financial crisis and the need for a "happy marriage" between the goals of price stability and financial stability.