Book contents
- Frontmatter
- Contents
- Introduction
- Dedication
- 1 Why the World Economy Needs a Financial Crash
- Part I The Economics of Financial Inflation
- Part II The Culture of Financial Inflation
- Part III Financial Crisis
- 13 Everything You Need to Know about the Financial Crisis but Couldn't Find Out Because the Experts were Explaining It
- 14 The Limitations of Financial Stabilisation by Central Banks
- 15 International Business and the Crisis
- 16 Developing Countries in the Crisis Transmission Mechanism
- Epilogue
- Notes
- Index
14 - The Limitations of Financial Stabilisation by Central Banks
from Part III - Financial Crisis
Published online by Cambridge University Press: 05 March 2012
- Frontmatter
- Contents
- Introduction
- Dedication
- 1 Why the World Economy Needs a Financial Crash
- Part I The Economics of Financial Inflation
- Part II The Culture of Financial Inflation
- Part III Financial Crisis
- 13 Everything You Need to Know about the Financial Crisis but Couldn't Find Out Because the Experts were Explaining It
- 14 The Limitations of Financial Stabilisation by Central Banks
- 15 International Business and the Crisis
- 16 Developing Countries in the Crisis Transmission Mechanism
- Epilogue
- Notes
- Index
Summary
This essay discusses the instruments available to central banks for stabilising nancial systems in the face of international capital mobility. These instruments are control of the money supply and credit availability, the short-term rate of interest, and open market operations. None of these instruments can be more than temporarily effective and, with nancial innovation and inflation, they are less capable of independent use. The essay explains that these instruments are powerless against nancial instability because world nancial systems are divided into two mutually incompatible monetary systems: those based on a government bond standard; and those based on a foreign currency reserve standard.
Introduction
Emerging market crises since the 1990s have highlighted the role of international capital movements as mechanisms bringing about nancial inflation and then, by the withdrawal of that capital, triggering the collapse of vulnerable markets. At the root of all this is a distribution of productive capital around the world that does not match the distribution of expenditure. Therefore the national units or currency areas, across which cross-border expenditure or capital flows take place, rarely have balanced cross-border expenditures or capital flows but tend to suffer from chronic de cits or surpluses.1 In the Bretton Woods era before 1971, limited nancing of de cits was available through the of ces of the International Monetary Fund.
- Type
- Chapter
- Information
- Why the World Economy Needs a Financial Crash and Other Critical Essays on Finance and Financial Economics , pp. 107 - 116Publisher: Anthem PressPrint publication year: 2010