1. Marko Škreb
The Trends and Challenges for Central Banks in XXI Century CBBH, 9 Juli 2018

2. A Brief History of Central Banking
What Has Changed during the Last Decade?
Which Challenges are Ahead of Central Banks?
Contents

3. There are Around 200 Central Banks in the World
The countries which are parts of supranational banks such as the ECB (19), the West African Monetary Union (14), the East Caribbean (8) etc... are also included. 1
Some countries which are not independent have central banks such as Northern Cyprus, South Ossetia, Somaliland, while other independent countries do not have banks such as Monaco, Kiribati or Palau. 2
Central banks differ by: functions (monetary policy, bank regulation and supervision, financial stability, fiscal agent for the country, other roles – consumer protection), size, reputation and importance in economy etc.. 3

4. Swedish central bank is the oldest central bank.

5. There Are Different Periods in the CB History
Charles Goodhart distinguishes the periods of consensus and uncertainty. There are three consensus periods, and the uncertainty periods are outside them: „the gold standard” ( ) , „fiscal domination” ( ) and „inflation targeting” ( ) 1
Following 2008 there has been a period of uncertainty, searching for consensus and changes 2
Every country and its CB is searching for its path and optimum activities in its environment on the basis of the existing laws, regulations and social consensus 3

6. The gold standard was supposed to maintain the fixed price of gold at 35 USD/oz. After the crisis, the system failed and the standard was abandoned.
The political control over CB. The CBs were subject to governments (Minfin) which set the interest rates and monetary policies (Plaza accord in 1984 on the USD depreciation).
The result was high inflation in the 60s and the 70s as decisions were made according to political cycle (the short vs. long term). This was the reason for initiating changes towards the CB independence and inflation targeting.
The BoE gained independence in The ECB was established in 1998.
CBs first had their hands tied (gold) and then they performed the politics tasks.
What It Used to Be Like?

7. Why 2008?
15 September 2008.
The failure of investment company Lehman Brothers with employees, the 4. largest investment bank in the USA

8. What Has Changed in CB?
The CB balance sheet in % of GDP: BoJ 92% FED 23% ECB 39% SNB 127% Source: Bloomberg

9. The Novelties Are also...
The expanding of the mandate to include financial stability (systemic),
Discussions on the objective (inflation, i.e. at which level? Nominal GDP),
Unemployment as an additional objective (FED double objective, but also other - RBNZ),
Consumer protection (Ireland and Croatia), financial education, economic inclusion and many more (statistics, fiscal agent...)

10. Challenges:
Central banks have become „superheroes and savers of developed economies”.
The highest risk is: „Too many promises, few results.”
Sir Mervyn King
Too high expectations may be dangerous, especially if environment is changing politically and economically

11. Political Changes over the Previous Decade
Populism
Extremism and xenophobia (trade wars)
Post-Picketty world and sensitivity to differences in income and assets (1%)

12. CB Indepedence (Becomes) Remains a Challenge
New mandates require stronger independence (from politics) but also the growth of transparency and responsibility
The most important assets of each CB is credibility
And also financial independence, which is not easy in contemporary circumstances (low interest rates, decrease of cash in circulation, lower lending to the state and banks)
CB Indepedence (Becomes) Remains a Challenge

13. What CBs Should Focus on?

14. How the Future Challenges Can Be Predicted? Trends vs. Swans

15. 1 Communication (Millennials and Z-Generation)

16. 2 FINTECH BITCOIN and other cryptocurrencies
Digitization impact on finance and CB
Bank of England Fintech accelerator (innovations)

17. What is the Future of Cryptocurrencies?
There are more than 1600 cryptocurrencies, with 4 of them having the value exceeding USD 10 billion (Bitcoin, Ethereum, Ripple, Bitcoin cash), but the BIS and some CBs would like to restrict them:
High volatility – speculative assets,
Blockchain technology can have some advantages
Inefficiency, huge consumption of electric energy
The possibility of illegal activities
They will not replace the fiat money!

18. 3 AI – Artificial Intelligence
Central banks without central bankers?

19. How Can the Institution be Changed to Adapt to Changes in Environment?
Commercial sector: market. Adjust or disappear!
Central banks are monopolies, public services, which are difficult to be changed.

20. It Is Important to Remember the Main Objectives:
Low and stable inflation
Financial system stability
Following up with and adjustment to new trends, having in mind the main objectives

21. „The Boldness of Simplicity” Henri Matisse

22. What Should Be Concluded?
CBs change (functions, independence, objectives) as the environment changes (economy and society). It will be continued
There are many trends of changes. Those important should be distinguished from those less important for a particular country and CB, keeping the main tasks.