Thursday, July 19, 2018

BIS Agustín Carstens - "My Message to Young People - Stop Trying to Create Money"

In this recent interview, the head of the Bank for International Settlements (Agustin Carstens) repeats that he sees no future for cryptocurrencies to be used as money. Below are some selected questions and answers from the interview.


Q: In the wrong hands, monetary policy can be something destructive?

A:  "That's also my view. Monetary policy determines the level of purchasing power, wealth and pensions. There's no disputing the fact that monetary policy can also have far-reaching social repercussions. In my experience, it is always the poorest who suffer the most from inflation. It is therefore the duty of central bankers to ensure that purchasing power is maintained. Moreover, there has to be a guarantee that money is able to fulfill its important role in the economic system and that monetary policy can help growth and income distribution."

Q: Don't you think it's a positive side effect that Bitcoin has got many young people thinking about money, money creation and the financial system?

A:  "Glance back into the past and you will see that creating gold or money from nothing has been a regular obsession. It never worked. Even the great physicist Isaac Newton was at one point in his life obsessed by alchemy and the idea of making gold. He was very successful in a number of fields, but in this one he failed. Newton ended up as head of the British Mint. Why? Because he could detect at once if a coin was counterfeit. After he failed in his attempt to make gold, he switched sides and sent counterfeiters to prison. So my message to young people would be: Stop trying to create money!"

Q: What's the main thrust of your argument?

A:  "Central banks are trusted, and that trust is something they have built up over decades and for which there is no substitute right now. Trust is a valuable commodity. It is easily destroyed, but winning it takes time. Money has become established. Young people should use their many talents and skills for innovation, not reinventing money. It's a fallacy to think money can be created from nothing."

Q: A well respected book about the BIS made reference to the "secret bank that rules  the world". How secret is your bank in actual fact?

A:  "Well, here you are sitting inside it, so - so much for secrecy! But seriously- We have made it our goal to present a more diverse and more human picture of the BIS - among other things, in our Annual Report and through our internet presence. We want to become more approachable. Much of what we do here is public. The bulk of our research, for instance, is public. Obviously, there are some activities, also discussions, which by their nature are subject to confidentiality. But I can assure you that such business is less exciting than some people imagine - and as for ruling the world: hardly! In two years' time, we'll be celebrating the 90th anniversary of the Bank's founding. We want to use the occasion to better explain what we do here and how important our activities are."

My added comments: During the time I have published this blog I have had some input from time to time from some well known BIS economists (off the record). The email exchanges have always been courteous and have answered the questions that I have asked. I get the monthly BIS newsletter and alerts which is available to anyone who asks for it.

BIS recently alerted me to this press release which asks if prolonged low interest rates may impact global financial stability. We have also documented numerous systemic risk warnings from the BIS (go here) over the years.

BIS and central bank critics will likely find this statement in the above interview ironic:

"It's a fallacy to think money can be created from nothing."

They of course believe that this is exactly what central banks do and that very belief is one of the reasons for various efforts to try and create alternative currencies and alternative monetary systems.

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