What Is the Major Risk for Central Bankers Today? on the Need to Complement Current Financial Stability Policies with Other Measures and Approaches

The risk that our world is undergoing a deep technological revolution has important consequences both for understanding the overall functioning of the economy and for central banks’ monetary and financial stability policies. This paper argues that the development of such a revolution diverts the impact of financial stability measures away from their intended objectives by magnifying any bias against the financing of small innovative businesses and projects and by complicating financial market-making.

Various measures may be envisaged nationally and internationally, however, to complement financial stability measures and reduce their unintended side effects: (a) rating agencies and banks (as well as central banks) should give their full role to microeconomic and cash data whenever relevant for securitisation or, more generally, the pricing of derivatives; (b) this principle should be incorporated into accounting practices and the supervisors of rating agencies and banks should also ensure its implementation; (c) financial authorities should examine the possibility of giving a larger role to financial stability policies for avoiding real estate bubbles and to monetary policy concerning the prevention of high-tech booms and busts; (d) measures to make financial market prices and market-making less vulnerable to uncertainty should be studied and compared.