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Banking on the Future: The Fall and Rise of Central Banking Hardcover – May 2, 2010

4 out of 5 stars 4 customer reviews

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Editorial Reviews


Named one of Financial Times (FT.com)'s Books of the Year in Nonfiction Round-Up in the Business & Economics list for 2010

"[T]he depth of its analysis will make Banking on the Future an important source of insights for years to come."--Ed Crooks, Financial Times

"The best assessment yet of the role played by the leading western central banks--the U.S. Federal Reserve, the ECB and the Bank of England--in the run-up to the financial crisis and beyond, from two former insiders at the top level of UK policymaker."--Financial Times (FT Critics Pick 2010)

"Buy the book with confidence."--Jane Fuller, Financial World

"Books on central banking usually vie with pills as sleep inducers, but Banking on the Future: The Fall and Rise of Central Banking is actually a page-turner."--Andrew Allentuck, National Post

"In this forensic and engaging overview, Susan Hough presents a frank, entertaining and personal review of the history of ideas, practice, personalities and experience in the science of earthquake prediction. Although Hough is a respected scientist, she takes a journalist's viewpoint here, not shying away from legitimate criticism of those she regards as friends, and taking on the credulous at the edge of, or even beyond, the mainstream scientific."--Ian Main, Times Higher Education

"[A] valuable, accessible volume. . . . This clear, nontechnical guide on the present and future of central banking from two eminent policy makers could not have come at a better time."--Choice

"A better title for this book would have been: All You Ever Wanted to Know About Central Banking and More. . . . Davies and Green provide much to inform and interest diverse audiences. . . .[I]t's a book that practitioners and students of central banking need to have on their shelf."--Management Today

"We get an insider's view of the nuts and bolts of central banking, but not so inside that the authors are uncritical. They readily identify the pressure to change regulations or advice when regulators feel under pressure to display expertise in new issues. . . . These are snippets of insight that only critical insiders know how to capture."--Dick Bryan, Australian Review of Public Affairs

From the Back Cover

"Not long ago, national central banks were endowed with wide-ranging authority, enormous prestige, and a high degree of independence. Today, in the aftermath of the global financial crisis, rethinking their functioning and their modus operandi is both natural and needed. Howard Davies and David Green write on this issue with authority, reflecting their practical experience, political sensitivity, and high analytic skills."--Paul Volcker, former chairman of the U.S. Federal Reserve and current chairman of the U.S. Economic Recovery Advisory Board

"Banking on the Future provides the most comprehensive and lucid analysis of the pressing challenges faced by central banks. The book clearly shows how monetary policy and financial stability concerns have drifted apart in recent years and the crucial role this dichotomy has played in the run up to the crisis. Davies and Green put forward precise, cogent, and practical recommendations for the future. It is urgent and important that policymakers ponder and act on these proposals."--Jacques de Larosière, chairman of the Strategic Committee of the French Treasury and former governor of the Banque de France

"An indispensable book for practitioners and students alike. The authors write from a depth of central banking experience, and have witnessed at close hand the disastrous consequences of separating monetary policy from financial regulation. They provide a convincing plan for reuniting the two."--William Keegan, senior economics commentator, Observer

"The great credit crisis of 2007-9 begs the question: how much do we need to rethink central banking? The explosive issues include whether central banks should lean against asset bubbles, whether inflation targeting needs to be reconsidered, and whether strong independence is compatible with the expanding responsibilities assumed by central banks. There is no one more reliable than Davies and Green for guiding us through this minefield."--Barry Eichengreen, author of The European Economy since 1945

"An extraordinary book that asks all the right and very difficult questions, and manages to suggest some of the answers."--Guido Tabellini, Università Commerciale Luigi Bocconi, Milan

"This is a timely book on an important subject. It represents a significant contribution to the literature on central banking, and draws on historical, political, economic, business, and sociological considerations."--Rosa M. Lastra, Centre for Commercial Law Studies, Queen Mary University of London

"In the wake of recent financial disturbances, there have been many papers and books on what went wrong, and on what changes there have to be in the private financial sector and the behavior of regulators. There has, however, been very little written on the implications for central banks. This is an excellent, clear, and important book."--Geoffrey E. Wood, Cass Business School, City University London


Product Details

  • Hardcover: 336 pages
  • Publisher: Princeton University Press; First Edition edition (May 2, 2010)
  • Language: English
  • ISBN-10: 0691138648
  • ISBN-13: 978-0691138640
  • Product Dimensions: 6.3 x 1.3 x 9.3 inches
  • Shipping Weight: 1.3 pounds (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (4 customer reviews)
  • Amazon Best Sellers Rank: #970,688 in Books (See Top 100 in Books)

More About the Author

Howard Davies is director of the London School of Economics and Political Science. Prior to his current appointment he was chairman of the Financial Services Authority, the UK's single financial regulator since 1998.

Howard Davies had previously served for two years as Deputy Governor of the Bank of England after three years as Director General of the Confederation of British Industry. From 1987 to 1992 he was Controller of the Audit Commission. From 1982 to 1987 he worked for McKinsey & Company in London and during 1985 -1986 was seconded to the Treasury as Special Adviser to the Chancellor of the Exchequer. He had previously worked at the Treasury and the Foreign and Commonwealth Office, including two years as Private Secretary to the British Ambassador in Paris.

Howard Davies was educated at Manchester Grammar School and Merton College, Oxford, where he gained an MA in history and modern languages. In 1979 he was awarded a Harkness Fellowship and in 1980 took an MSc in management sciences at Stanford Graduate School of Business, California. Between 2002 and June 2010 he was a Trustee of the Tate. He is a member of the governing body, Royal Academy of Music; and in 2004 was elected to an Honorary Fellowship at Merton College. In 2004 he joined the board of Morgan Stanley as a non-executive director. He was appointed to the Board of Paternoster in 2006 as a non-executive director, and chaired the Man Booker Prize in 2007. In 2009 he became an advisor to the Government Investment Corporation of Singapore.

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Format: Hardcover Verified Purchase
Howard Davies and David Green share with their readers the lessons that they have drawn from their long career in central banking. Their main theme turns around the deep flaws that the credit crisis has revealed in the modus operandi of central banks and what to do about these flaws. To their credit, Messrs. Davies and Green make topics such as the structure and status of central banks, monetary policy, financial stability, and market operations and financial infrastructure, accessible to readers who are not directly involved into central banking.

Messrs. Davies and Green make many comments on the Bank of England, the European Central Bank, and the U.S. Federal Reserve. Other central banks come into play only when their coverage is useful to better apprehend the workings of central banking worldwide. The chapter dedicated to central banking in the emerging markets is too general to be of much use to anyone interested in this topic.

The main value of this book probably lies in the chapter about asset prices. Messrs. Davies and Green rightly denounce the passive attitude of central banks towards asset price bubbles. The authors quote Steve Roach on this subject: "The lack of monetary discipline has become the hallmark of an unfettered globalization. Central banks have failed to provide a stable underpinning to world financial markets and to an increasingly asset-dependent global economy ... As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error." Therefore, Mr. Roach calls for a shift away from "one-dimensional fixation on CPI-based inflation.
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The past few years has obviously caused many people to fundamentally re-think the role of central banking. This book explores the current state of central banking, the reasons why it was in the state it was before the start of the crisis and the actions we must take as a function of the various shortcomings we have witnessed with the benefit of hindsight. This is written for both people with a curiousity for both perspective from central bankers and academic economists as well as those who are actively engaged in the field of central banking.

To give a quick overview the book begins in several chapters to describe in some detail the various forms of instability that can form within the macroeconomy and how central banks have and should consider their role with respect to the stresses which arise. In particular it is argued that during the Greenspan era the world gravitated towards almost pure focus on CPI as the variable that monetary policy should target. This happened at the expense of focusing on measures of financial stability and shadow banking systems arose without the eye of the central banks being as watchful as would have been prudent. The need for central banks to be watchful of a financial stability index was understood, but the conflicts of interest meant that such reviews were not able to be done without bias. The general lack of focus on asset prices and their impacts on both financial stability as well is described. The authors applaud the work of the BIS for being predictive and skeptics of the growth of some financial products is brought up.

The book also discusses much of the practical issues in central banking. The need to show confidence without doubt, guiding expectations, displaying strong will to achieve goals.
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Do you know what it means to enlarge a central bank's balance sheet? Any old bank's balance sheet? The difference between fiscal and monetary policy? The definitions are not vastly complex, but they would have been very useful to the ininitiate who happened on this book. They make it clear that central bankers are a cliquish group who speak in their own shorthand, a jargon intended to convey little actual information, especially to outsiders. It would have been useful if the authors themselves took greater pains to bring the hoi polloi into this charmed circle.

When you get to the bottom line, central bankers can elect among several policy objectives: interest rate stability, acceptable rates of employment, and currency exchange rate stability among them. They have one (1) primary tool to achieve these objectives, monetary policy, which is to say, setting interest rates and reserve requirements.

It doesn't work. A mathematician would tell you that one independent variable cannot simultaneously determine three unrelated dependent variables. Something has to give. And it frequently does. Right now it is the Euro-denominated debt of the PIGS countries.

Worth slogging through, with a computer at hand so you can read the Wikipedia definitions of the various concepts being thrown around. It would have been helpful had the authors cribbed from Wikipedia for our benefit. They might even have done a better job.

I add in August 2015 that "The Creature from Jekyll Island" is a good compliment to this volume. It explains the concepts that I remark above need clarification. It is unambiguous in pointing out the dangerous collusion that must exist between central bankers and politicians. Politicians need more money than they can raise via taxes. Central banks create it. Inflation invariably follow. The citizens lose two ways: directly via taxes, and indirectly via the lost value of their savings..
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