Disrupting Central Banking or Shadow Central Banking

Abstract

Abstract Private entities have recently attempted to invade the realm of central banking. This chapter identifies such activity as ‘shadow central banking’, and draws analogies to the previous emergence of ‘shadow banking’ more generally. The similarities between shadow banking and shadow central banking are clear when analysing the circumstances of their emergence, their pathologies, and the regulatory response. This chapter focuses on the evolving roles of central banks and private initiatives, as their activities have led to the rethinking of central banking activities and the form of money in modern capitalism. In doing this, it proposes that this disruption of traditional central banking activity stems from a new interpretation of the concept of money, one that defies the classic dichotomy of ‘central bank money’ versus ‘commercial bank money’. This chapter then analyses the main characteristics of shadow central banking and identifies specific commonalities not only with the shadow banking system, but also with historical systems that pre-existed the modern central banking framework. Finally, it considers the systemic risks, systemic conflicts of interest and opaque corporate governance mechanisms associated with shadow central banking and posits some policy considerations to address such risks.