Central Banking: Theory and Practice in Sustaining Monetary and Financial Stability

Chapter 13Future Challenges for Central Banking

Learning Objectives

1. Explain how the intensification of globalization might pose challenges to central banking in the future.
2. Explain how the recent evolution in financial activities might pose challenges to central banking in the future.
3. Describe key features of financial reforms instituted after the 2007–2010 global financial crisis.

Part I of this book discusses how central banking has evolved over the centuries to meet the challenges that have arisen with changes in political, economic, and financial circumstances. Parts II and III of this book discusses how the practice of modern central banking is shaped by theoretical developments and practical experience. Specifically, Part II focuses on the central banks’ use of monetary policy to achieve their monetary stability mandate. Part III, meanwhile, focuses on the central banks’ use of macroprudential tools in addition to monetary policy to help attain their financial stability mandate, given the lessons learned from the 2007–2010 financial crisis.

In this chapter we look into the future and discuss three major forces that are likely to continue to shape the economic and financial landscape that central banks operate in. These three forces are (1) the intensification of globalization, (2) the evolution in financial activities, and (3) unfinished business from the 2007–2010 financial crisis. (See Figures 13.1 and 13.2.)

FIGURE 13.1 Three Future Challenges for Central Banks ...