Macro Musings with David Beckworth
Claudio Borio on the Future of Central Bank Operating Systems
Jan 8, 2024
Claudio Borio, Head of the Monetary and Economic Department at BIS, discusses the challenge of large balance sheets at central banks. They explore the shift from the pre-2008 scarce reserve system to the abundant reserve system. They also discuss the political pressure on central bank balance sheets and the implications for fiscal policy.
50:58
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Quick takeaways
- The shift from a scarce reserve system to an abundant reserve system has changed the dynamics of monetary policy by allowing banks to hold reserves as a store of value.
- The abundant reserve system has both advantages, such as additional flexibility and potential financial stability benefits, and disadvantages, including the potential loss of central bank independence and the delinking of the central bank balance sheet from monetary policy.
Deep dives
The shift from scarce reserve system to abundant reserve system
The podcast episode discusses the shift in monetary policy operating procedures from a scarce reserve system to an abundant reserve system following the Great Financial Crisis. In the past, central banks used scarce reserve systems to tightly control the amount of reserve balances held by banks, creating an opportunity cost for holding reserves. However, after the crisis, central banks increased the amount of reserves in the system, resulting in an abundance of reserves. This shift allowed banks to hold reserves not only for settlement purposes but also as a store of value, changing the dynamics of monetary policy implementation.
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