Bank of England wants to Boldly Go

Bank of England Chief Economist Andrew Haldane dreams of sitting in a Star Trek-style chair, staring at a bank of electronic screens.

But he isn’t imagining exploring strange new worlds or seeking new life and new civilizations. This captain wants to warp through the alien galaxy that is the global economy. And he’s looking for trouble.

Mr. Haldane, one of central banking’s big thinkers, revealed his futuristic dream Wednesday in a speech to students at Birmingham University in England. His theme: The pros and cons of a world where capital markets are closely entwined and how our globalized, finance-fueled economy can be made safer. Policy-makers have already made progress in strengthening the banking system by demanding lenders finance their activities with more equity and other reforms. Now they need to look at the monetary system itself, he said.

“The international monetary and financial system has undergone a mini-revolution in the space of a generation as a result of financial globalization,” Mr. Haldane said, according to a text of his remarks. “It has become a genuine system. This has altered fundamentally the risk-return opportunity set facing international policy-makers: Larger-than-ever opportunities, but also greater-than-ever threats.”

That’s where the USS Enterprise comes in. Mr. Haldane said he dreams that regulators will one day be able to monitor the colossal ebb and flow of capital across the globe in real-time, “from a Star Trek chair using a bank of monitors,” and work out where problems are brewing, much as meteorologists pore over complex weather patterns to spot the germ of a hurricane.

Such a “global financial surveillance system” would also enable officials to stress-test global finance “to detect impending financial cliff edges,” he said, adding that such a system’s natural home would be the International Monetary Fund.

Mr. Haldane has often described finance as a complex network akin to an ecosystem, where risks can dissipate but problems can spread like wildfire, too. “The global monetary system operates in a similar fashion,” he said, describing it as a tightly-knit network that’s “robust yet fragile.”

Mr. Haldane’s Star Trek chair was only one of several policy options he put forward to shield the world economy from future shocks. He also suggested countries issue bonds with repayments linked to how well their economies are performing. He said nations should deploy so-called macroprudential policies designed to curb lending in concert to prevent destabilizing explosions in credit. And he repeated an earlier call for the IMF to be given much greater resources to help stricken countries.

Mr. Haldane didn’t discuss U.K. monetary policy in his speech. Investors expect lift-off for the BOE’s benchmark interest rate from a record low of 0.5% in the second half of 2015.

Author: Simon Foster

I am one of the news editors for trekmate. I have been a trekkie since BBC2 first showed TNG in the UK. More recently I have been trying to convert my wife into a trekkie with mixed success.

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