Abstract
Monetary policy is currently well-established as an intrinsic function of a central bank. However, from a historical perspective, it is a relatively new addition to a central bank’s traditional banking functions such as the provider of payment systems and lender of last resort (LLR) . Compared to such traditional functions, monetary policy places emphasis on a macro consideration of finance and the economy overall. And, since monetary policy has a macroeconomic influence on the national economy, it attracts more attention from the public and legislature compared to other central bank functions.
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Notes
- 1.
Goodhart (1988) explains that the BOE ’s regulatory and supervisory authority emerged from the role of “club president” of a club established by the banking community to gain trust from depositors (see Chap. 1, Sect. 1.6.3).
- 2.
Goodhart (2010, p. 9) notes that “Lord Cobbold, former Governor of the BOE, is reputed once to have said, ‘A central bank is a bank, not a study group.’ I take this to mean that the essence of central banking lies in its power to create liquidity, by manipulating its own balance sheet .”
- 3.
Refer to Shirakawa (2008a) for definition of exchange rate policy system and current situation in various countries.
- 4.
If there is only one board, it is called a ‘single-board system’ and if multiboards exist, it is called a ‘multiboard structure’ (within which, if there are two, a ‘two-board system’). The Reserve Bank of Australia (RBA) and the Bank of Thailand (BOT) have multiboards, one for each function. The RBA adopts a two-board system, comprised of the Reserve Bank Board as the supreme decision-making body of monetary policy , and Payment System Board as the supreme decision-making board for payment systems (the RBA does not have the prudential policy function). The BOT has a Monetary Policy Committee, Financial Institutions Policy Committee, and Payment System Committee for its main three functions.
- 5.
Refer to Williamson (1975, 1985) and Douma and Schreuder (2002).
- 6.
Looking only from the perspective of TCE, monetary policy and fiscal policy both relate to macroeconomic policy and the pertinent policy bodies should be integrated. But, since there is a fundamental difference in their public governance , integration is inefficient and will not be discussed in this book. In fiscal policy, tax revenues are distributed under a national budget based on the right to collect tax, and therefore fiscal policy decisions should be made through the direct political process . On the other hand, if monetary policy is placed under direct political influence it would be contrary to its basic goal of price stability, and therefore monetary policy should be independent from any political process . However, should a central bank incur losses from unconventional monetary policy , exchange rate policy, or prudential policy , the amount paid to the national treasury would be reduced, thus indirectly increasing the taxpayer burden. As such, those policies that may incur losses are considered ‘quasi-fiscal policy’ and discussion on whether a central bank should manage them from the perspective of public governance is ongoing.
- 7.
Even if it is technically possible to outsource market operations to a private bank (regardless of the relationship between market operations and banknote issuance, management of payment systems), as Williamson (1999) clarified, the probity of involving a private organization, whose objective is to pursue profit, arises (see Chap. 3, Sect. 3.2.1).
- 8.
Teece (1994) explicated that integration of organizations with common production factors could enjoy economies of scope stemming from production cost reduction and transaction cost reduction unless the integration increases internal transaction cost beyond the production and transaction costs reduction. We can categorize common production factors into four aspects: (a) indivisible tangible assets, (b) technical know-how , (c) organizational know-how, and (d) brand name .
- 9.
Not only the board but also the research arm supporting its decision-making will be included under the monetary policy body .
- 10.
In a case where interdependence is ‘high for both entities,’ a long-term contract that does not necessitate organizational integration can be possible. Since both organizations are very dependent on each other, should one party not comply with the contract, then the other party can force it to perform the contractual obligations.
- 11.
The same organizational relationship is observed from both vertical and horizontal integration since service production taken up in this chapter is not necessarily clear as in the case of material production. Therefore, the two services could be seen either as a vertical relationship or diversification of services.
- 12.
Here, ‘database’ refers to a system that can retrieve information ranging from macro financial/economic data to various other data regarding financial statements of individual banks that is accumulated in the form of paper or as data on a computer.
- 13.
See Fig. 4.8. The banking board can be divided further into the ‘prudential policy board ’ that makes decisions on macro and micro prudential policies and the ‘payment system board ’ that deals with payment systems.
- 14.
As noted in Chap. 3, Sect. 3.3.4, a supervisory board might not be established with the objective of coordination and information sharing among the boards. Rather it might be established for the purpose of reflecting the will of the public and legislature with respect to appointment of central bank officials and making policy decisions. And, a multiboard structure is adopted in order to segregate policy making and policy implementation.
- 15.
Milgrom and Roberts (1992, p. 410) call this “the unity of responsibility” principle and state that “When the success of a project or operation depends on the coordinated execution of several separate tasks in a way that makes it difficult to assess performance separately in each, then it is usually best to make a single individual responsible for all the related tasks.”
- 16.
A concept similar to ‘organizational culture’ is ‘corporate culture ,’ which is often used in the context of corporate strategy, but here, organizational culture and corporate culture are considered the same. Akerlof and Kranton (2010) included ‘identity ’ in the utility function and by doing so discussed it in the framework of economics. They defined ‘identity ’ as an activity that brings about gain through acting in line with the norms and ideals of a specific group.
- 17.
- 18.
However, as mentioned in Sect. 4.2.2, before monetary policy was considered as a central bank function, macro-perspective based organizational culture did not develop, and, therefore, activities with no regard for the macro perspective became a serious problem.
- 19.
In this case, should the supervisory board consist only of experts from second-tier boards, it would just be a place for representatives with the respective board’s interest. Therefore, members of the supervisory board should be composed of experts as well as individuals having a broad perspective.
- 20.
However, in 2005, in accordance with its internal rules, the BOJ established the Management Committee with a view to examining and managing bank-wide issues regarding the banking operations. The Deputy Governor is the chairman and executive directors its members. If we consider this committee as a board, then the BOJ can be said to have adopted a two-board system. The Management Committee fulfills the role of coordinating sectors related to banking functions and may be beneficial in strengthening subcultures of sectors related to banking functions.
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Oritani, Y. (2019). Governance of Monetary Policy. In: The Japanese Central Banking System Compared with Its European and American Counterparts. Springer, Singapore. https://doi.org/10.1007/978-981-13-9001-2_4
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