Recent events have underscored how rigorous analysis, enriched by the variety of international experiences, can help central banks have better informed exchanges of views and learn from each other’s experience. This is particularly true of two longer-standing focal points of BIS research, whose importance became obvious during the economic storm unleashed by the pandemic: monetary policy frameworks and technological innovation.
The pandemic has highlighted the challenges monetary policy frameworks face in both advanced and emerging market economies (EMEs). In advanced economies, central banks reacted swiftly and forcefully to stabilize the financial system. Despite a substantially narrower policy space compared with the pre-Great Financial Crisis era, they once again took unprecedented and determined measures, further stretching the boundaries of central banking. The financial shock for EMEs was also very severe, in the form of record capital outflows, large exchange rate fluctuations and steeply rising bond premia. EME central banks’ response was equally swift and forceful, as they extended the arsenal of measures developed over the years with some new tools. In fact, the shock represents a real-life stress test of central banks’ monetary policy frameworks.
The future of central banking is inextricably bound up with innovation. The technological sea change that is transforming the financial sector and the wider economy affects all aspects of central banks’ work, from payments to monetary policy to financial regulation. By their very nature, central banks have to be at the forefront of the debates concerning the nature of money in a digital world and the new players’ potential to reshape the financial services landscape and the financial system more broadly. This debate is bound to intensify further in the wake of the pandemic, which is likely to accelerate many behavioural and technological trends that were already in train before.
2020 is also the BIS’s 90th anniversary, which the institution used as an occasion to look back at the history of international monetary and financial cooperation – its achievements and setbacks. It is an occasion to reflect on the opportunities and challenges that lie ahead.