scholarly journals Economic Accounts and Financial Systems

2021 ◽  
pp. 1-9
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Central Bank ◽  
Balance Sheet ◽  
Central Banking ◽  
Lender Of Last Resort ◽  
Financial Systems ◽  
Financial Flows ◽  
Balance Sheets ◽  
The Government ◽  
Real Assets ◽  
Bank Money

AbstractThis chapter introduces the system of accounts of the main sectors of the economy (households; non-financial corporations, the government; banks, and the central bank), describing how these sectors are interrelated through financial claims and liabilities. A financial system, consisting of commercial banks and the central bank, manages flows of funds originating from households, without these flows causing a need for the real sectors to liquidate illiquid real assets. The basic types of assets and liabilities are: real goods, gold, banknotes, deposits, bonds, loans, and equity. We explain how the shortcomings of both IOU and commodity-money based financial systems can be solved via establishing a central bank. A central bank is defined here by its balance sheet and central bank money is the central bank’s basic liability. Both monetary policy implementation and lender of last resort issues relate to liquidity flows within balance sheets. Understanding the logic of basic financial flows is therefore the basis for understanding central banking.

Introduction and Overview

2019 ◽  
pp. 1-7
Author(s):  
Ulrich Bindseil
Keyword(s):  
Private Sector ◽  
Balance Sheet ◽  
Central Banks ◽  
Central Banking ◽  
Alternative View ◽  
Lender Of Last Resort ◽  
The Government

The Introduction describes the main themes and objectives of the book and provides an overview of its content. First, the current dominant view on the origins of central banking is recalled and challenged, and it is outlined what alternative view this book will propose, namely that central banking dates back to before 1800 and that a number of European continental institutions played a major role in its development. Then an overview of the chapters of the book is provided: Chapter 1 restating the currently dominant view on the origins of central banking; Chapter 2 on money issuance; Chapter 3 on the relation with the government; Chapter 4 on lending to the private sector; Chapter 5 on the lender-of-last resort; Chapter 6 on the overall balance sheet of early central banks; and Chapter 7 restating the rehabilitation of early central banking; The annex schematically reviews a total of 25 central banks operating before 1800.

Early Central Banks’ Economics and Balance Sheets

2019 ◽  
pp. 155-171
Author(s):  
Ulrich Bindseil
Keyword(s):  
Risk Management ◽  
Central Bank ◽  
Business Model ◽  
Balance Sheet ◽  
Central Banks ◽  
Central Banking ◽  
Management Approach ◽  
Balance Sheets ◽  
Bank Funding ◽  
High Level

This chapter summarizes the roles of the various central bank operations in the pre-1800 world, what one can conclude on the overall economics and business model of early central banking, and what this implies in terms of overall balance sheet and risk management approach. The ‘alchemical quest’ of early central banking included in particular the universal challenge of bank balance sheet management to achieve significant liquidity, maturity, and credit transformation while preserving bank funding stability also in future stress situations at a high level of confidence. Section 6.1 reviews again in one context the key balance sheet positions of early central banks and the associated economic functions and market operations. Section 6.2 systematically compares the operations of the major early central banks and reviews their balance sheet structures and relative sizes.

scholarly journals International Monetary Frameworks

2021 ◽  
pp. 101-121
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Lender Of Last Resort ◽  
Balance Sheets ◽  
Fixed Exchange Rate ◽  
International Monetary Arrangements ◽  
Recent Developments ◽  
Bank Balance Sheets

AbstractIn this chapter we turn to representing flows of funds in alternative international monetary frameworks, and what global liquidity these different frameworks provide. We first recall some arguments in favour of and against fixed exchange rate systems. We then introduce two international monetary arrangements of the past which imply fixed exchange rates, namely the gold standard and the Bretton Woods system, and recall why both eventually failed. We then turn to three international monetary frameworks in the context of the current paper standard, i.e. fixed exchange rate systems, flexible exchange rate systems, and the European monetary union. We explain the role of an international lender of last resort and related solutions, and how these allow for more leeway in running fixed exchange rate systems. We also show how banks and central bank balance sheets are affected by international flows of funds and the balance of payments. Finally, we briefly review recent developments of foreign currency reserves, being the key central bank balance sheet position in this context.

Lender of Last Resort

2019 ◽  
pp. 136-154
Author(s):  
Ulrich Bindseil
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Debt Crisis ◽  
Central Banks ◽  
Central Banking ◽  
Lender Of Last Resort ◽  
Central Bank Money ◽  
Bank Of England ◽  
European Debt Crisis ◽  
Bank Money

The recent central banking literature often argues that the LOLR function would be the key feature defining a ‘modern’ central bank. This chapter argues that this view may appear too radical (despite the enormous benefits of the LOLR) as the appearance of the LOLR does not change the nature of central banking (which is primarily associated with the issuance of central bank money). After providing an overview of the roles of central banks for financial stability, the chapter focuses on one early LOLR episode, namely the measures of the Hamburger Bank, Bank of Amsterdam and Bank of England in the European debt crisis of 1763. It is shown that in particular the Hamburger Bank acted as systemic lender of last resort, comparable to what modern central banks did in 2008.

Part I Financial Markets, 3 UK Central Banking and Financial Stability

2021 ◽  
Author(s):  
Morton Guy ◽  
Marsh Andrew
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Central Banking ◽  
Debt Management ◽  
National Debt ◽  
Legal Tender ◽  
Bank Of England ◽  
The Government ◽  
The Uk ◽  
William Iii

This chapter talks about the Bank of England as the UK's central bank, which was established in 1694 by a Charter granted by King William III and Queen Mary II under the authority of an Act of Parliament. It explains the principal object of the Act in creating the Bank as a vehicle for raising money for the government. It also discusses how the Bank was closely associated with the raising and management of the national debt since its inception, which is a function that the Bank retained until the creation of the UK Debt Management Office (DMO) in 1998. This chapter highlights how the Bank raised money by issuing of banknotes, which became widely used as a convenient means of making large—value payments. It points out that the Bank of England notes were not formally legal tender until 1833.

scholarly journals Financial Independence of Central Bank through the Balance Sheet Prism

2014 ◽  
Vol 3 (2) ◽  
pp. 37-59 ◽  
Author(s):  
Valentina Ivanović
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Central Banks ◽  
Central Bank Independence ◽  
Financial Independence ◽  
Balance Sheets ◽  
Financial Strength ◽  
The Global Financial Crisis

Abstract The main reason for central bank independence lies in the fact that it is necessary to clearly distinguish spending money from the ability of making money. Independence of central banks is now a characteristic of almost all developed and highly industrialized countries. In this respect, it represents an essential part of the overall economic reality of these countries. Over the past decade or somewhat earlier, the issue of importance of central bank independence has been raised in developing countries, making the institutional, functional, personal and financial independence of central banks current topics for consideration. The key reason for the growing attention to financial independence of central banks is due to the effects of the global financial crisis on their balance sheets and therefore the challenges related to achieving the basic goals of the functioning of central banks - financial stability and price stability. Financial strength and independence of central banks must be developed relative to the policy and tasks that are carried out and risks they face in carrying out of these tasks. Financial independence represents a key base for credibility of a central bank. On one hand, the degree of credibility is associated with the ability of central banks to carry out their tasks without external financial assistance. In order to enhance the credibility of central bank in this regard, it must have sufficient financial strength to absorb potential losses and that power must be continuously strengthened by increasing capital and rearranging profit allocation arrangements. This is particularly important in times of crisis.

scholarly journals Central Banks

2021 ◽  
pp. 11-28
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Central Bank ◽  
Commercial Banks ◽  
Balance Sheet ◽  
Banking System ◽  
Central Banks ◽  
Reserve Requirement ◽  
Money Creation ◽  
Reserve Banking ◽  
Bank Money

AbstractThis chapter develops further the role of a central bank and its interplay with commercial banks. Together, the two ensure the provision of liquidity to the economy, such that the real sectors are shielded from flows of funds originating from household and investors. We also disaggregate the banking system into two banks to represent deposit flows between banks and their impact on the central bank’s balance sheet, and to distinguish between what we call “relative” and “absolute” central bank intermediation. We then integrate deposit money creation by commercial banks into our system of financial accounts, and revisit some old debates, such as the limits of bank money creation and the role of related parameters that the central bank can set (not only the reserve requirement ratio, but also the collateral framework). Finally, we explain the concepts of “plain money” and “full reserve banking” within the financial accounts, and also discuss in this framework the recent proposals regarding central bank digital currency (CBDC).

scholarly journals Sharīʿah-compliant central banking practices: lessons from Muslim countries’ experience

2020 ◽  
Vol 12 (1) ◽  
pp. 7-26
Author(s):  
Zaheer Anwer ◽  
Shabeer Khan ◽  
Muhammad Abu Bakar
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Islamic Law ◽  
Financial Institution ◽  
Central Banking ◽  
Policy Implications ◽  
Content Type ◽  
Muslim Countries ◽  
Muslim Majority ◽  
The Government

Purpose The purpose of this study is to document how a central bank can perform its primary and secondary functions in a Sharīʿah-compliant manner. It also seeks to investigate the outcomes of the experiments of Muslim-majority countries in this regard. Design/methodology/approach As a first step, a detailed review of existing literature is conducted, which discusses the views of scholars and practitioners on the central banking mechanism in a fully Sharīʿah-compliant financial system. Moving further, the case studies of Iran, Sudan and Pakistan are presented to highlight experiences of regulators from three Muslim-majority countries, which aimed to achieve full compliance with Sharīʿah (Islamic law) principles related to Islamic finance. To evaluate their models, an assessment of their practices is performed in the light of Sharīʿah rules and principles based on existing literature. Finally, the issues involved in establishing a Sharīʿah-compliant central bank (SCCB) are discussed and improvements are suggested. Findings It is found that Iran played an effective role in pursuing broader objectives of monetary policy by setting priorities for credit allocation and assisting the government in reducing expenses; however, with respect to instruments, its experience is limited to the rebranding of conventional products. Sudan has not only used monetary policy to effectively curb inflation but also it has introduced various indirect instruments to perform monetary operations. Pakistan succeeded in formulating a theoretical roadmap to establish a SCCB but the desired objectives could not be achieved because of multiple factors. Practical implications This study has important policy implications for regulators and policymakers from Muslim countries, who can use the findings in shaping effective Sharīʿah-compliant central banking practices in their respective countries. Originality/value This study discusses the salient features of an important Islamic financial institution, the central bank and evaluates the experiments of three Muslim-majority countries in implementing Sharīʿah-compliant central banking practices. To the best of the knowledge, this evaluation has not been performed in the existing literature and the present study fills in this gap.

Central Banking without Central Bank Money

1999 ◽  
Vol 99 (92) ◽  
pp. 1 ◽  
Author(s):  
Alain Ize ◽  
Arto Kovanen ◽  
Timo Henckel ◽  
◽  
◽  
...  
Keyword(s):  
Central Bank ◽  
Central Banking ◽  
Central Bank Money ◽  
Bank Money

scholarly journals Can the Central Bank Alleviate Fiscal Burdens?

2019 ◽  
pp. 130-170
Author(s):  
Ricardo Reis
Keyword(s):  
Central Bank ◽  
Public Debt ◽  
Balance Sheet ◽  
Central Banks ◽  
Resource Constraint ◽  
Income Risk ◽  
The Real ◽  
The Public ◽  
The Government ◽  
The Impact

Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This chapter inspects the ability of the central bank to alleviate the fiscal burden by influencing different terms in the government resource constraint. It discusses five channels: (i) how inflation can (and cannot) lower the real burden of the public debt, (ii) how seigniorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited.

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