Abstract
This paper compares central banking in the era of Bagehot’s Rule (1873) and the current era of quantitative easing (QE) and zero (or near-zero) interest rate policy (ZIRP) to suggest that our analytical frameworks need updating. It also proposes some rules for emerging-market central banks to follow today. Bagehot’s Rule — that in a financial crisis, the central bank should lend freely against good collateral, and at market interest rates — can no longer apply in an age when the gold standard has been abandoned, hard budget constraints have disappeared, and the national perspective of central banks limits their ability to regulate a shadow banking system that is global in nature. Central ban s in reserve currency countries have used QE and ZIRP because the political will to stem excess consumption and raise taxation is lacking. Central banks in emerging markets might avoid the domestic collectiveaction traps that the deficit countries have fallen into by applying a systems-wide analytical perspective. This would involve privileging diversity, imposing a strict limitation on concentration, the promotion and regulation of the commons, and increased taxation.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.