So who are these central banks? Well, normally in every country they are called the bank of, or the reserve bank of. Okay. It's usually the clue. The Bank of England. The Reserve Bank of India. Alright. The Federal Reserve system. The Bank of France. These are normally this is their name. Something along those lines. And as I said, this is an institution removed from government, also removed from the banking system. They don't have contact with us. As depositors, as borrowers they don't have a borrowing and lending relationship with the government. Their relationship their work occurs through the banks that make up our banking system in each country. Probably the best known of the central banks is the Federal Reserve System, which is the U.S. central bank it's commonly referred to as the FED this is a central bank that was created in 1913. And it's a very decentralized system. It's kind of an odd thing because in some ways the ECB, which was born much later, has ended up looking quite a bit like the Federal Reserve system. So if you look at a map of the United States, you can see that the country's divided into 12 different districts. And in each district, you have a central bank, right? A, a regional bank. So, you have a federal reserve bank out in San Francisco that is in charge of the western states, right? You've got a federal bank, reserve bank in New York which is the most important one because New York is the financial center of the United States. So, in the US they have, you have these 12 district banks. And they send representatives that help in decision making, all right? And they have frequent meetings and they decide on monetary policy for the United States, with each of the representatives, kind of, explaining and defending the needs of their particular region. Now, the Fed as we mentioned in an earlier session. When the Fed was created, we didn't have a clear idea of monetary policy. We had an idea of what could make the banking system safe, what you should do about supply of money. Right. But the idea of using some of the things that central banks normally do, which we'll talk about in a few minutes. Using those things to influence the economy and bring it to to a desired level of GDP, potential GDP, just didn't exist. So, one of the most important tools of central banking that we're going to be talk about in a minute. Which is open market operations, was discovered by accident by the FED in the 20s and now it's used every day in every country. We can say the FED did almost everything wrong in the great depression and it's been a long process of learning right now the new President and the Fed is going to be a woman, Janet Yelin. She's the only woman heading up a Central Bank in a developed country. There are some in the developing world and so this is quite an interesting moment. And we're all waiting to see exactly what her path will be that she will want to set out for the Fed. Of course she doesn't decide it alone. There's a voting system. Now the other central bank that we all know about is actually a super national central bank. It's the European Central Bank or the ECB which began to exist as it is today in 1999. When the European countries that were going to form the Euro handed over their monetary authority to this Central Bank. And before in Europe, before 1999, every country of course had its own central bank that made the monetary policy decisions for its economy. So in a way it looks a little bit like the Fed with its districts. So you had a Bank of Spain, and you had a Bank of France, and you have the Bundesbank in Germany, and each of these countries made independent decisions about monetary policy. Well starting in 1999 these were all unified into a single bank that made monetary policy decisions for the, 12 at that time, countries that first would use Euro. So in the European Central Bank we see a similar sort of decision making mechanism. You've got representatives from the different countries that vote together about monetary policy for the Euro area or the Euro zone. Now obviously just like in the Federal Reserve System, sometimes one area needs one kind of a policy, and another needs another kind. So in the Euro zone, the problem is, let's find the right policy that, that tries to suit the needs of the Eurozone as a region, not each individual country. This can be kind of tricky. So right now, the President of the European Central Bank is [FOREIGN] he's Italian. The first president was Dutch because they decided, they were trying to decide between French and German, and they decided it's best to go for a small country to start out with. Then he handed over to a French governor. And then he in turn handed over to Mario Draghi. Right now, as we're recording, there are 17 countries in the Euro, and each of them has representatives in the decision making bodies of the European Central Bank. Now other central banks that you may have heard of, there's the Bank of England, which we've heard a lot about recently because their new governor is a Canadian, which is an interesting thing, isn't it? For the central bank of a country to hire a foreigner to run their monetary policy, but The President [UNKNOWN] was had a quite reputation in Canada where he came from, from the Bank of Canada, and the British actually looked for the best monetary policy authority they could find internationally and chose this Canadian to run their monetary policy. So it will be interesting to watch his tenure at the Bank of England as they move for this difficult time after the crisis. And then we have another interesting situation in Japan. Where abenomics the new policy of the new Prime Minister Abe he actually replaced the governor of the Central Bank of Japan and of the Central Bank of Japan because He wanted him to do what he desired in his policy of you know the three arrows that are going to cure the problems of the Japanese economy. They hope. So, he looked for another Central Bank governor and replaced the existing one so that this Central Bank governor would fit his policies to the objectives of Abenomics. So, in a sense, you would say not very independent, right? And so as academics rank different central banks, they would definitely keep this in mind when they're looking at the central bank of Japan, because he was replaced by a new Prime Minister to do what he wanted him to do. So we have varying degrees of independence. We have different kinds of, of functioning. Some are more centralized, some are less centralized, some have a single mandate as we said the ECB being the prime example some have a dual mandate as the others do that I mentioned with varying degrees of independence. But all of them have the same basic objective, and the same basic tools as they try to implement monetary policy in their economies. [MUSIC]
