Abstract

Editors

The Evolving Role of Central Banks

Editors

Patrick Downes

Reza Vaez-Zadeh

Papers presented at the fifth seminar on central banking, Washington, D.C., November 5-15, 1990

Central Banking Department

International Monetary Fund

Washington • 1991

© 1991 International Monetary Fund

Cover design by IMF Graphics Section

Joint Bank-Fund Library Cataloging-in-Publication Data

The Evolving role of central banks: papers presented at the fifth seminar on central banking, Washington, D.C., November 5–15, 1990 / Patrick Downes, Reza Vaez-Zadeh, editors.

  • p. cm.

Includes bibliographical references.

ISBN 1-557-75185-4

1. Banks and banking, Central—Congresses. I. Downes, Patrick, II. Vaez-Zadeh, Reza.

HG1811.E95 1991 CIP

Price: US$28.50

Address orders to:

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Cable: Interfund

Foreword

The art of central banking has evolved over time and continues to change, but the principles of sound central banking practice have remained largely unchanged. This is the message that has emerged from a series of central banking seminars for senior officials of the Fund’s member countries that have been held at the International Monetary Fund (IMF) since 1983. These seminars have provided a forum for an open and lively exchange of views between the participants, speakers, and the staff of the Fund about the evolving role of central banks. While there was lively controversy on almost all the issues discussed in the seminars, a remarkable measure of support emerged for the idea that the central bank should have a degree of autonomy in pursuing single-mindedly the objective of price stability, which is generally agreed to be an important factor contributing to long-run growth and prosperity.

The success of the seminars owes a great deal to the participants, who come from an ever-widening range of countries. Their questions and active participation enriched the discussion and helped us to obtain a better grasp of the major concerns among member central banks, which will enable us to focus our own efforts. We are grateful to the many distinguished guest speakers who invested their time in preparing for the seminar and participating in stimulating discussions. Finally, I would like to thank the members of the Fund’s Executive Board, who assisted in the recruitment of speakers.

The papers in the present volume were presented at the fifth seminar in this series, held November 5–15, 1990. The theme was the interdependence of central banking functions and the role of central bank autonomy viewed against the background of economic transition, financial sector reform, and banking system crisis. As a former central banker, I believe that the issues raised in this volume are important, thought-provoking, and exciting. They are both relevant to the day-to-day art of central banking and important for the evolving role of the central bank in an ever-changing world.

Michel Camdessus

Managing Director

International Monetary Fund

Preface

The organization of the seminars on central banking—which is done jointly by the Central Banking Department and the IMF Institute—is an important aspect of the work of the Central Banking Department. The main responsibility of the department is to assist member countries improve their capacities to implement sound economic policies through financial systems reform. This is a broad term that includes a revamping of the institutional and regulatory framework. It means, for example, establishing or restructuring a central bank with an appropriate degree of autonomy that can operate a market-oriented monetary policy; introducing modern instruments and operating procedures for implementation of monetary and foreign exchange market operations and banking supervision; promoting a sound and robust financial system designed to deliver an appropriate range of financial services; and establishing a legal and accounting framework and effective payment and clearing systems that allow the proper functioning and adequate monitoring of the operations of the financial institutions in a market-based economy.

We see the seminar as a forum for the exchange of ideas—to learn from the participants and our invited speakers, and to share with them the experience we have gathered from our operations in member countries. On each occasion, we have adapted the content of the seminars to reflect the concerns and experiences of member country central banks and those of the staff of the Central Banking Department in responding to the requests for technical assistance. We have tried to incorporate the views and suggestions of the past seminar participants. In the latest seminar, which focused on the role, functions, and independence of central banks, the objective was to present the evolving views about the proper role of the central bank and about the design of monetary and regulatory policies, and to review and analyze the developments in financial markets around the world. The major objective of the Central Banking Department in the 1990s is to help strengthen the role of monetary policy in member countries, and this seminar was the first installment toward that goal.

Within the Fund, many people have contributed to the successful organization of the seminar and the production of this volume. I would mention in particular the teamwork of Patrick Downes, Reza Vaez-Zadeh, and Hannah Faux of the Central Banking Department, which has guided this project from start to finish, and the editorial assistance provided by Juanita Roushdy of the External Relations Department of the IMF.

J.B. Zulu

Director

Central Banking Department

International Monetary Fund

Contents

  • Foreword

  • Preface

  • Introduction

  • Part I Role and Functions of Central Banks

  • 1. Government Financing, Domestic Debt Management, and Monetary Policy: Some Lessons from the Italian Experience

    • Cesare Caranza

  • 2. The Central Bank’s Role in Financial Sector Development

    • Deena Khatkhate

  • 3. Clearing and Payment Systems: The Central Bank’s Role

    • Bruce J. Summers

  • 4. Foreign Exchange Management and Monetary Policy

    • C. Freedman

  • 5. Prudential Supervision and Monetary Policy

    • H. Robert Heller

  • 6. Implications and Remedies of Central Bank Losses

    • Reza Vaez-Zadeh

  • 7. Managing a Central Bank: Goals, Strategies, and Techniques

    • T. O’Grady Walshe

  • Part II Central Bank Independence

  • 8. Role and Independence of Central Banks

    • Antonio Fazio

  • 9. Central Bank Independence in New Zealand

    • R. Lindsay Knight

  • 10. Central Bank Operations and Independence in a Monetary Union: BCEAO and BEAC

    • E. Sacerdoti

  • 11. Central Bank Independence in Austria

    • Maria Schaumayer

  • 12. The Role of an Independent Central Bank in Europe

    • Hans Tietmeyer

  • Part III Role of the Central Bank in Financial Crises

  • 13. Role of the Central Bank in Banking Crisis: An Overview

    • Andrew Sheng

  • 14. Techniques for Dealing with Problem Banks

    • Brian Quinn

  • 15. Resolving Troubled Thrift Institutions and Bad Banks: Lessons for Central Banks in Developing Countries

    • Henry N. Schiffman

  • Part IV Role of the Central Bank in Economic Transition and Reform

  • 16. Financial Sector Reform and Central Banking in Centrally Planned Economies

    • V. Sundararajan

  • 17. The Evolving Role of the Central Bank in China

    • Tomás J. T. Baliño

  • 18. The National Bank of Poland: A Central Bank in Transition

    • Andrzej Olechowski

  • 19. Financial Reform, Financial Policy, and Bank Regulation

    • Jacques Gautier

  • 20. Sequencing Financial Reform

    • R. Barry Johnston

  • 21. The Transition from Direct to Indirect Instruments of Monetary Policy

    • Carl-Johan Lindgren

  • 22. Jamaica’s Transition from Direct to Indirect Instruments of Monetary Policy

    • G. Arthur Brown

  • 23. Kenya’s Transition from Direct to Indirect Instruments of Monetary Policy

    • David Folkerts-Landau

  • Background Papers

  • 24. Effectiveness and Implications of Limits on Central Bank Credit to the Government

    • Alfredo Leone

  • 25. Central Bank Independence and Central Bank Functions

    • Mark Swinburne and Marta Castello-Branco

  • Selected Bibliography

  • List of Participants

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