(Ebook) THE ENCYCLOPEDIA OF CENTRAL BANKING by Louis-Philippe Rochon and Sergio Rossi ISBN 9781782547433, 1782547436

(Ebook) THE ENCYCLOPEDIA OF CENTRAL BANKING by Louis-Philippe Rochon and Sergio Rossi ISBN 9781782547433, 1782547436

Central banking (that is, the variety of policy targets, strategies, and instruments used bymonetary authorities all around the world) has become an important topic of discussionin many circles beyond the economics profession, most notably at the political level andin society at large. Owing to the global financial crisis induced by the demise of LehmanBrothers on 15 September 2008, all major central banks in the world have been led tointervene in order to avert the collapse of the global economy, mainly as a result of themeltdown of their “globalized” financial systems. Since then, monetary policy has beenin the foreground (to try) to address a number of issues raised by such a systemic crisisat a global level. Both supporters of and opponents to monetary- policy interventions arebeing forced to learn, from empirical evidence more than from conventional economicwisdom, that several firmly held beliefs in monetary macroeconomics are essentiallywrong or flawed. This is so much so that even the nature of money itself is fundamentallydifferent from its simplistic understanding – within the central banks’ community as wellas beyond it (see McLeay et al., 2014).As a matter of fact, the global financial crisis has forced many, particularly within themainstream of the profession, to rethink afresh how central banks operate and also thenature of money and banking. Indeed, the established view about money’s exogeneity –epitomized by Friedman’s (1969, pp. 4–5) conception of “helicopter money” – as wellas the causal link between bank deposits and bank loans, have been proven wrong byan increasing volume of empirical evidence across the global economy. To be truthful,several heterodox economists have been pointing out (since the 1980s, if not earlier) thatin our economic systems money is an endogenous magnitude, whose issuance depends onbanks’ credit lines independently of any pre- existent deposits with them. In this regard,central banks are settlement institutions on the interbank market, where they set the socalledpolicy rate(s) of interest in order to hit their monetary- policy goals eventually. Thatbeing the case, then any central- bank intervention that does not consider this empiricalevidence can only by chance (rather than by design) affect the relevant economicsystem as intended by policy makers and the scientific community inspiring them. Forinstance, so- called “quantitative easing” programmes put into practice on both sides ofthe Atlantic cannot be successful, as they are inspired by the erroneous belief that moneyis exogenous and the central bank can induce banks to provide more credit lines to bothhouseholds and non- financial firms just by increasing the volume of banks’ “liquidity”in the central bank vaults.This Encyclopedia aims at providing a critical understanding of central banking, basedon a plural perspective on several issues at both theoretical and policy- oriented levels. Itintends to explain the complexity of monetary- policy interventions, their conceptual aswell as institutional frameworks, and their own limits and drawbacks. It is informative,as it provides the reader with the body of knowledge that is necessary to understand thebackground of central banks’ decisions in the aftermath of the global financial crisis. Itis stimulating, because it offers different and at times controversial explanations of thesame subject matter, illuminating it also from a historical point of view. The history ofmonetary thinking, indeed, is seminal for understanding both current monetary thoughtand contemporary monetary- policy decisions – both when they are right and when theyare wrong, to paraphrase Keynes’s (1936, p. 383) argument with respect to economists’ideas.The more than 150 contributors to this collective effort have been confronted with thechallenge of writing nearly 250 entries in a clear and comprehensive way, consideringthe space constraint imposed by such a voluminous, but synthetic work. They are allwarmly thanked for having accepted this challenge, whose outcomes should contribute toa much better, and sound, understanding of an essential item (money) and an importantinstitution (the central bank) for the “common good”. The editors of this volume wishalso to thank the publishers, whose professional involvement made it possible for thisEncyclopedia to see the light in a timely manner for central banking with regard to the stillopen issues raised by the global financial crisis as well as by its dramatic and still largelyunsettled consequences for a variety of stakeholders across the world.Louis- Philippe Rochon, Laurentian University, CanadaSergio Rossi, University of Fribourg, SwitzerlandReferencesFriedman, M. (1969), The Optimum Quantity of Money and Other Essays, Chicago: Aldine.Keynes, J.M. (1936), The General Theory of Employment, Interest and Money, London: Macmillan.McLeay, M., A. Radia and R. Thomas (2014), “Money creation in the modern economy”, Bank of EnglandQuarterly Bulletin, 54 (1), pp. 14–27.