| I have great sympathy for your argument, and agree with the gist of it. What you are describing is pretty close to the free banking eras of eg Scotland and Canada. > The central bank is unregulated [...] That's not true. Many central banks have lots of regulations on them. However, they are not regulated by the kind of competition you outlined above. > [...] The central bank functions as an entity that loans money to banks with interest. It is this interest rate that is used to regulate the money supply in the US. [...] It's probably more productive to think in terms of the total money supply, and less in terms of interest rates. For one, loaning money to banks is only one part of what the Fed does. They also outright buy and sell assets (eg in open market transactions). In many instances, the banks (technically) lend money to the Fed by having positive account balances at the Fed. For a contrasting example on how interest rates don't need to be the focus of monetary policy, have a look at the Monetary Authority of Singapore. Instead of using interest rates as a channel to communicate and effect their monetary policy, they use the exchange rate of the Singapore dollar to a basket of foreign currencies. Crudely, instead of 'setting' the interest rate, they 'set' the exchange rate. Simplified a bit, they 'set' the exchange rate by standing by to buy and sell Singapore dollar to any comer. They have a printing press, so they can push down the exchange rate as much as they want to, and they also have enough assets to prop it up. Crucially, this framework doesn't need to worry about any zero bound on interest rates. It works as long as Singapore dollars are worth anything more than zero. |
I'm not making an argument. I'm stating the current status quo of the US. No argument was ever made here about whether I think it's right or wrong.
>That's not true. Many central banks have lots of regulations on them. However, they are not regulated by the kind of competition you outlined above.
It is true. The central bank is overall unregulated because the central bank IS the regulator. In the same way a government is unregulated so is the central bank. In the US the central bank is more or less the fourth branch of the government.
You're talking about "many central banks." while I'm simply talking about the Federal reserve in the US. I think you're mistaken, I'm not making a general statement about how central banks across the world works.
>For one, loaning money to banks is only one part of what the Fed does. They also outright buy and sell assets (eg in open market transactions). In many instances, the banks (technically) lend money to the Fed by having positive account balances at the Fed.
This is true. However one of the primary ways they influence the money supply is through interest rates. Interest rates are also one of the triggers of the SVB bank run.
>For a contrasting example on how interest rates don't need to be the focus of monetary policy, have a look at the Monetary Authority of Singapore. Instead of using interest rates as a channel to communicate and effect their monetary policy, they use the exchange rate of the Singapore dollar to a basket of foreign currencies. Crudely, instead of 'setting' the interest rate, they 'set' the exchange rate.
They don't need to be, but they ARE quite central in the US. Additionally given how the US dollar is sort of the central peg of all other currencies, the US would rather the Dollar remain the Rate at which all other currencies are set against. That way the US in a way indirectly and collectively controls the worlds monetary value.
I didn't offer any opinions in my initial reply. I'm simply stating what's going on in the US about the nature of the reserve ratio and how it doesn't matter when applied to SVB. It seems you're trying to make an argument here against one I never made?