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- BoE's executive director Hauser: Central bank balance sheets are set to play much broader role in future
BoE's executive director Hauser: Central bank balance sheets are set to play much broader role in future
- Central bank balance sheets will start to shrink again as the recovery takes hold;
- BoE now has assets of nearly GBP1 trillion – equivalent to almost half the annual output of UK economy; that ratio is 10 times what it was in 2006, and more than double any previous peak in our 327 year history – including the wars of the 18th and 20th centuries;
- Other central banks have seen similar increases;
- Quantitative Easing (QE) has of course been a key driver of this increase in many countries, including UK;
- QE will start to run off when policymakers judge it to be warranted by outlook for inflation and activity;
- Central bank balance sheets of future will be very different to those we knew at start of the millennium; they will be structurally larger, even after current QE programmes unwind;
- Central banks will meet a bigger share of the structurally higher demand for liquidity and contemplate possible Central Bank Digital Currencies (CBDC)
- Central bank balance sheets will be more variable as lower global interest rates and broader liquidity insurance toolkit mean balance sheets play more active countercyclical role;
- We expect to adopt market-led approach, in which we allow reserves to fall as QE assets roll off, but stand ready to replace any demand shortfall that might arise through shorter term open market operations; this should allow us to run ‘lean’ balance sheet without suffering excessive upward pressure on short-term rates;
- As we turn to consider potential design of CBDC, there will be important decisions to take on whether to remunerate the instrument, whether to limit access to in some way, and how much functionality to provide in addition to its basic role as retail payment medium
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