Conclusion-:
Central banks enjoy a revered position in discussions on monetary matters. At their disposal are a seemingly endless array of tools and weapons ready to correct any market "imbalance" that threatens economic stability. However, these institutions are only as useful as the assets they represent. Expansionary monetary policies cannot fix all problems that a central bank faces. Countries faced with banking sectors heavily indebted in foreign-denominated liabilities will eventually find the central bank (which lured them to these positions) to be impotent.
Jésus Huerta de Soto demonstrates in his magisterial work Money, Bank Credit, and Economic Cycles that the current banking system enjoys the privileged legal provision of being able to treat deposit accounts as though they were loans. A central bank sustains this fractional-reserve system by ensuring that an illiquid banking industry will have adequate liquidity in times of banking crises.
The possibility of an insolvent central bank, however, bypasses the question of whether the central bank should be abolished and concludes that it will, in certain instances, abolish itself as insolvency renders it helpless. Banking systems heavily indebted in foreign-denominated currencies are especially vulnerable to this possibility, simply because central banks are only able to bailout domestically denominated debt obligations.
A well-known adage states that "if it ain't broke, don't fix it." Economists have long claimed that central planners are necessary to ensure economic stability. Their looming bankruptcies could end up exposing the sterility of this very function.
Let's hope that once these monetary authorities are exposed as broken, they will be fixed in light of the true needs and demands of a prosperous economic order. Free banking, operating under established legal principles coupled with the private production of money, will ensure that an oversized banking industry does not develop. Neither will it rely on the fallacy that an omnipotent centralized monetary authority is always on guard, ready to save capitalism from its own excesses.
Complete article-: http://www.marketoracle.co.uk/Article13205.html
Central banks enjoy a revered position in discussions on monetary matters. At their disposal are a seemingly endless array of tools and weapons ready to correct any market "imbalance" that threatens economic stability. However, these institutions are only as useful as the assets they represent. Expansionary monetary policies cannot fix all problems that a central bank faces. Countries faced with banking sectors heavily indebted in foreign-denominated liabilities will eventually find the central bank (which lured them to these positions) to be impotent.
Jésus Huerta de Soto demonstrates in his magisterial work Money, Bank Credit, and Economic Cycles that the current banking system enjoys the privileged legal provision of being able to treat deposit accounts as though they were loans. A central bank sustains this fractional-reserve system by ensuring that an illiquid banking industry will have adequate liquidity in times of banking crises.
The possibility of an insolvent central bank, however, bypasses the question of whether the central bank should be abolished and concludes that it will, in certain instances, abolish itself as insolvency renders it helpless. Banking systems heavily indebted in foreign-denominated currencies are especially vulnerable to this possibility, simply because central banks are only able to bailout domestically denominated debt obligations.
A well-known adage states that "if it ain't broke, don't fix it." Economists have long claimed that central planners are necessary to ensure economic stability. Their looming bankruptcies could end up exposing the sterility of this very function.
Let's hope that once these monetary authorities are exposed as broken, they will be fixed in light of the true needs and demands of a prosperous economic order. Free banking, operating under established legal principles coupled with the private production of money, will ensure that an oversized banking industry does not develop. Neither will it rely on the fallacy that an omnipotent centralized monetary authority is always on guard, ready to save capitalism from its own excesses.
Complete article-: http://www.marketoracle.co.uk/Article13205.html