Four Informational Challenges of Central Banks Today
Author: Willem Buiter
*This was presented by the author at a recent CSGS-organised public lecture
Central banks today face four daunting informational challenges. First, they must relearn inflation control in a world with multiple complex drivers of inflation. Second, to discharge their responsibilities and enhanced lender of last resort and market maker of last resort they must learn how to value and price systemically important financial assets when markets are disorderly. Third, they must manage the ongoing digitization of the financial system – including DeFi, stablecoins, on-chain bank deposit tokens and CBDCs. Fourth, they must manage the systemic political economy uncertainty associated with the central bank’s inescapable role as a fiscal agent of the state – something that poses an unavoidable, permanent threat to central bank operational independence in the pursuit of price stability.