The cover story for the fifth summer edition of The OMFIF Bulletin – as in every year, The Bulletin takes a rest in August before returning in September – centres on the increasingly convoluted marketplace for central banking policies, investments and ideas. Some might call it, at several levels, a bazaar. As OMFIF research in Global Public Investor 2014 has demonstrated, central banks are joining in the hunt for yield by boosting equity allocations. While this is a legitimate reaction to the large-scale increase in reserves in recent years and a concomitant fall in yields on traditional investments in advanced countries’ government bonds, it poses several questions, not the least of which is the issue of transparency.
As these pages of the OMFIF Bulletin emphasise, there is a deep (potential or real) conflict between different components of central banks’ duties. On the one hand, they are now enjoined, post-crisis, to promote financial stability rather than to concentrate solely on their primary task of assuring stable monetary conditions. They have to juggle competing political and economic interests. And they need to generate returns on their assets to fund their operational requirements and obviate the need to seek extra capital from governments – that requests that they fear could constrain their independence. A significant dichotomy is apparent in the calls in the June annual report of the Bank for International Settlements, the Basel-based central bankers’ bank, for the main industrialised countries to rein in their loose monetary policies sooner rather than later to prevent the hazard of asset bubbles of the sort that set off the 2007-08 unrest. Commentators have pointed out that the BIS is hedging its bets.