Central Banks: autonomy and innovation, keys

How is the president of the bank of banks in the world observing the unprecedented chapter that the world is experiencing and that has shaken the planet’s economy?

What are the lessons that the makers of monetary policies are recording from the unimaginable lockdown that the pandemic forced in 2020?

What are the most important values ​​of central banks and where should they go? What does Agustín Carstens, head of the Bank for International Settlements, think?

Among his main ideas are:

1.- The autonomy of central banks is key when economic conditions are especially adverse. It is precisely in those moments, when they must assert their independence to apply monetary policy and bring down inflation as quickly as possible.

2.- The coordination and eventual synchronization of the central institutes is fundamental.

3.- Technological innovation must seek and find a secure and efficient infrastructure for payments, particularly in this era of rapid technological change

Regarding Mexico, Carstens notes that Banxico’s governing board, headed by Victoria Rodríguez Ceja, has acted in a timely manner. In fact, he started raising his interest rate early.

And that the Mexican government has maintained macroeconomic stability and applied the gasoline subsidy, without incurring in fiscal imbalances.

It is the perspective of the Mexican Agustín Carstens, former secretary of the Treasury and former governor of Banxico. It is part of his analysis of the context that the world and Mexico have experienced after the Covid-19 pandemic, Russia’s war against Ukraine, the global inflationary phenomenon, and the boom and crisis of crypto assets.

On a visit to Mexico, he pointed out that our country is among the emerging countries that have responded promptly and effectively.

The performance of the Mexican central bank stands out. But his vision is more focused on what is happening on the international stage.

He considers that central banks in the world have among their main challenges:

1.- The abatement of inflation, at the highest possible speed; 2.- Maintain and exercise their autonomy; and, 3.- Technological innovation with a response that meets market demand, with the supply of digital money.

Given the special conditions that the Covid-19 pandemic, Russia’s war against Ukraine and the international inflationary phenomenon have generated, central banks have to overcome the pressures of those who ask that financing conditions be maintained artificially low.

Central banks must maintain their autonomy to fulfill their mandates and put the fight against inflation before any other interest. Faced with the crisis that cryptocurrencies are experiencing, Carstens believes that they represent the “bilimbiques” that emerged during the period revolutionary in Mexico.

The business of making money has always been attractive and the facts show that in general, crypto assets represent a private business. The technology companies that manage and supply the virtual assets aim to make a profit from these operations. In other words, when using them, the user could be handing over the keys to the monetary system to companies whose interest is private.

And in a scheme like the one they offer, it is very complicated for each of the participants to have to verify the origin of the operations. There is no centralized entity that performs the verification. It is an illusion that this type of asset decentralizes the operation of financial services.

As long as they operate without a regulator, a regulatory framework, or guarantees, the use of private virtual currencies is a source of risk.

Central banks are making progress in developing their own digital currencies (CBDCs), because they recognize that the use of new technologies streamlines financial operations, lowers operating costs, and can favor the operation of cross-border payment systems. Undoubtedly the main challenge for central banks is to bring down inflation and for the BIS, to find the right path to move towards digital money. Let’s see.

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