Talk:Central bank
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[edit] State-owned vs privately-owned
It would be interesting and very informative to classify the banks as either state owned or privately owned. I know the distinction between the two is not always so obvious, but I'm sure some kind of a compromise can be made.
I did a good amount of googling to find out those I didn't already know.
[edit] State owned and controlled banks
- Bank of Cuba
- Bank of Libya
I also believe that these are:
- Central Bank of the Islamic Republic of IRAN
- Central Bank of the Democratic People's Republic of Korea (north korea)
- Norges Bank (Bank of Norway) "Norges Bank is a separate legal entity owned by the state."
[edit] Independent banks
(where the 'democratic' bodies of government might or might not have some kind of saying, these could be separated into two categories)
- Federal Reserve
- Bank of Canada
- Bank of Britain
- Bank of France
- Bank of Sweden & Bank of Finland
- Deutsche Bundesbank ('Bank of Germany')
- Bank of Saudi Arabia
- Banco Central de Chile (Central Bank of Chile)
- Bank of Japan
82.46.234.167 22:33, 6 February 2007 (UTC) NB "Bank of Britain" does not exist - should be Bank of England
- I'm sorry, but it says almost everywhere I look on the internet that the Bank of England is nationalised http://www.bankofengland.co.uk/about/parliament/index.htm and "wholly-owned by Government". Isn't that the same as state owned? In fact I am trying to find a central bank that is not priately owned apart from the Fed. Any help? User:Pzyktzle 07:20, 23 March 2008 (UTC)
[edit] Those I couldn't figure out at all
- State Bank of Pakistan (the name could implify state ownership)
- Central Bank of Syria ("The Central Bank of Syria is an independent public sector establishment operating under the guarantee of the state , and within the guidelines issued to it by the Council of Ministers . The Capital of the bank is fully subscribed by the state.")
According to this, a good thumb rule seems to be that those counties treatened or blockaded by the U.S. have fully state owned central bank, except in Norway.
Any thoughts or opinions on this?
- Only these: that in those cases where the bank does operate efficiently as an instrument of national policy, you may be looking at a national bank as opposed to a "central bank," -- and how ironic it would be if the U.S., which pioneered the concept of a national bank, were to have gone full circle to trying to suppress those impulses in other nations. --Herschelkrustofsky 10:59, 14 Oct 2004 (UTC)
There is nothing truly national about the Federal Reserve, it is a private corporation. Just like the Bank of England. Although it seems that way, intended apparence, it is a private corporation with shareholders. The reason of the countries without a central bank (private corporation) being threatened and blockaded is just that. It has been going on a long time, financiers have financed nations in war thereby always winning, because both sides endebt themselves. Then, these people implant a financial power structure thanks to the debt nations hold towards them. Much of the west is controlled in this way as is Japan and others. So they want their elitist oligarchic power structure in other nations that don't have it yet, no matter what the cost. The madness of grandeur. Pepitopax 20:39, 15 April 2006 (UTC)
[edit] Central bank v national bank
Excuse me for choking on my breakfast. The distinction here (and at national bank) is complete BS, probably driven by the peculiar status of the US Federal Reserve. A central bank is responsible for monetary policy, and is usually state-owned and non-autonomous (subject to political decision-making on interest rates etc). A "national bank" is simply a state-owned bank (when it isn't just a name for an ordinary private bank making itself sound big, eg "First National Bank"). It is a big deal when the usual central bank model (state-owned, politician-run) is not used - see the setting-up of the independent Bank of England in 1997 and ECB in 1999. (Enhanced credibility and so forth are supposed to make monetary policy more effective and enhance economic stability by leaving experts to try to hit well-defined targets. Expectations etc.) The Fed is a rare exception in being not just independent from government, but privately-owned. Rd232 14:54, 1 Jan 2005 (UTC)
- Actually, the Fed is not the exception, it is the rule. The issue here is not the technical features of ownership, but rather, the political "autonony" or lack thereof. The real "exception" was Hamilton's national bank, and no one can deny that it was a highly controversial institution, because it was the first major departure from the European practice of giving the private banking community control over monetary policy; critics of the Fed would say that the creation of the Fed was simply a reversion to that policy. --HK 15:16, 1 Jan 2005 (UTC)
- The distinction drawn in the article between "central" and "national" is at best US-only usage, at worst just wrong. A central bank makes monetary policy and is the lender of last resort; it may be public or private and have varying degrees of independence. Take C.E. Walsh, the guru of central bank inflation-targetting: on his website [1] you will not find the phrase "national bank" except as part of the proper name of a bank (eg Swiss National Bank). If you still disagree, please cite some sources. Rd232 16:33, 1 Jan 2005 (UTC)
- I should think that the very concept of a national bank would be anathema to "the guru of central bank inflation-targetting." --HK 16:38, 1 Jan 2005 (UTC)
- I was afraid I'd get that response. Having just had a fight to get natural monopoly conform to the standard definition in economics, I was hoping to correct this article without a battle. I can't find anything useful that relates to the supposed central/national distinction, though I gather it has something to do with historical usage in the US. Please either provide some sources or agree that you'll let me change the article. I don't want to say the distinction as outlined is completely fictional, but it isn't general. If you can show historical US usage in this way, that usage can be described in the article. Rd232 20:51, 1 Jan 2005 (UTC)
- Wrote up an article about the History of the Federal Reserve from Edward Flaherty. It explains that the national banks were private US banks with the right to issue notes that would be accepted by other national banks. There were 100s of those. --J heisenberg 19:20, 3 Jan 2005 (UTC)
- OK. But the right to issue notes is not specific to "national banks", except possibly in that historical context. In other times and places, all sorts of banks could and did issue notes. Rd232 20:50, 3 Jan 2005 (UTC)
- Agreed. National banks fall far short of central banks--I would delete the line or replace it by a comment about independence --J heisenberg 20:59, 3 Jan 2005 (UTC)
- OK. But the right to issue notes is not specific to "national banks", except possibly in that historical context. In other times and places, all sorts of banks could and did issue notes. Rd232 20:50, 3 Jan 2005 (UTC)
- Wrote up an article about the History of the Federal Reserve from Edward Flaherty. It explains that the national banks were private US banks with the right to issue notes that would be accepted by other national banks. There were 100s of those. --J heisenberg 19:20, 3 Jan 2005 (UTC)
- I was afraid I'd get that response. Having just had a fight to get natural monopoly conform to the standard definition in economics, I was hoping to correct this article without a battle. I can't find anything useful that relates to the supposed central/national distinction, though I gather it has something to do with historical usage in the US. Please either provide some sources or agree that you'll let me change the article. I don't want to say the distinction as outlined is completely fictional, but it isn't general. If you can show historical US usage in this way, that usage can be described in the article. Rd232 20:51, 1 Jan 2005 (UTC)
- I should think that the very concept of a national bank would be anathema to "the guru of central bank inflation-targetting." --HK 16:38, 1 Jan 2005 (UTC)
- The distinction drawn in the article between "central" and "national" is at best US-only usage, at worst just wrong. A central bank makes monetary policy and is the lender of last resort; it may be public or private and have varying degrees of independence. Take C.E. Walsh, the guru of central bank inflation-targetting: on his website [1] you will not find the phrase "national bank" except as part of the proper name of a bank (eg Swiss National Bank). If you still disagree, please cite some sources. Rd232 16:33, 1 Jan 2005 (UTC)
- The political autonomy of central banks is more a matter of degrees than a dichotomous issue. Virtually all central banks walk a fine line between autonomy and political influence. The Coyne Affair in the 1950s and 60s provides an illustration. In 1956 James Coyne was appointed governor of the Bank of Canada.. He pursued a tight monetary policy, and this brought him into conflict with the government who was pursuing an expansionary fiscal policy. In 1961 Coyne was forced to resign. The following policy statement was issued by the central bank under the new governor (Louis Rasminsky) : "In the ordinary course of events, the bank has the responsibility for monetary policy, but if the government disapproves of the monetary policy being carried out by the bank it has the right and the responsibility to direct the bank as to the policy which the bank is to carry out. . . .If this policy, as communicated to the bank, is one which the governor feels he cannot in good conscience carry out, his duty is to resign." (Bank of Canada Annual Report of the Governor to the Minister of Finance, 1961). But the government came under heavy political pressure by those who felt too much power was now resting with the government, and by 1967 the Bank of Canada act was amended to delineate the scope and extent of central bank autonomy. This is the framework in which most central banks operate. They are supposed to be independent enough to be immune from the vicissitudes of political whim, yet, at the same time, ultimately responsible to a democratically elected government. Is this fine line a contradiction in terms. . . maybe. But this precarious balance is maintained by counterposing threats. On the one hand, the central bank operates under the threat of government intervention, but on the other hand, governments must live with the political fallout if they do decide to intervene. mydogategodshat 19:23, 1 Jan 2005 (UTC)
- This is the kind of discussion we should have under "independence", instead of the false central/national dichotomy. (I take it mydogategodshat is agreeing with me.) Rd232 20:51, 1 Jan 2005 (UTC)
- I agree with you up to a point. I agree that the issue is too complex to be presented as a dichotomy. A more productive view would be to represent the range of policies as a continuum with "substantial autonomy" and "minimal autonomy" as the two end points. We would find that most central banks would find themselves near the middle of a gaussian distribution. What about the extremes: Are there examples of central banks with no private sector input? . . . probably, and the term "national bank" does seem to fit. Are there examples of central banks with no input from democratically elected officials? . . . probably, although the only one that I can think of that comes close is the Fed. What term do we use for them? mydogategodshat 04:35, 2 Jan 2005 (UTC)
- There is a spectrum of independence for central banks, a term which covers everything being discussed here. If some people use "national bank" to describe part of that spectrum, fine, but I want sources, and a tight definition. The current dichotomy (especially the implication that it is widely accepted in economics) is wrong. Rd232 09:38, 2 Jan 2005 (UTC)
- I have looked through my bookshelves for references to the term "national bank". Of the five financial macroeconomics books there, only one mentions the term. George Kaufman's Money, the Financial system, and the Economy uses the term to differentiate state chartered banks from nationally chartered banks. For example on page 86 he writes, "The Comptroller was established by the National Banking Act of 1863 to charter and supervise the operation of national banks." So I cannot find any evidence to support HK's claim. Unless Hk can find some references, I must agree with you that there is no significant difference between the two terms. However I should point out that my library is populated by economics books: if it consisted of political economy or developmental economics books, the results could be different. mydogategodshat 16:03, 3 Jan 2005 (UTC)
- Part of the confusion could be the result of multiple meanings of the term. To use the term to indicate a member bank of the Fed is quite different from the way it could be used in less developed countries. mydogategodshat 16:17, 3 Jan 2005 (UTC)
- Multiple meanings is part of the problem; though not sure any of them conform to HK's approach. The "central bank" is the official executor of government monetary policy, regardless of name (which may or may not include "National") or ownership or degree of independence. Basta. Rd232 19:12, 3 Jan 2005 (UTC)
- Part of the confusion could be the result of multiple meanings of the term. To use the term to indicate a member bank of the Fed is quite different from the way it could be used in less developed countries. mydogategodshat 16:17, 3 Jan 2005 (UTC)
- I have looked through my bookshelves for references to the term "national bank". Of the five financial macroeconomics books there, only one mentions the term. George Kaufman's Money, the Financial system, and the Economy uses the term to differentiate state chartered banks from nationally chartered banks. For example on page 86 he writes, "The Comptroller was established by the National Banking Act of 1863 to charter and supervise the operation of national banks." So I cannot find any evidence to support HK's claim. Unless Hk can find some references, I must agree with you that there is no significant difference between the two terms. However I should point out that my library is populated by economics books: if it consisted of political economy or developmental economics books, the results could be different. mydogategodshat 16:03, 3 Jan 2005 (UTC)
- There is a spectrum of independence for central banks, a term which covers everything being discussed here. If some people use "national bank" to describe part of that spectrum, fine, but I want sources, and a tight definition. The current dichotomy (especially the implication that it is widely accepted in economics) is wrong. Rd232 09:38, 2 Jan 2005 (UTC)
- I agree with you up to a point. I agree that the issue is too complex to be presented as a dichotomy. A more productive view would be to represent the range of policies as a continuum with "substantial autonomy" and "minimal autonomy" as the two end points. We would find that most central banks would find themselves near the middle of a gaussian distribution. What about the extremes: Are there examples of central banks with no private sector input? . . . probably, and the term "national bank" does seem to fit. Are there examples of central banks with no input from democratically elected officials? . . . probably, although the only one that I can think of that comes close is the Fed. What term do we use for them? mydogategodshat 04:35, 2 Jan 2005 (UTC)
- This is the kind of discussion we should have under "independence", instead of the false central/national dichotomy. (I take it mydogategodshat is agreeing with me.) Rd232 20:51, 1 Jan 2005 (UTC)
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- How sad that the discussion is so small, the corporate media is doing it's job very well.Pepitopax 20:59, 15 April 2006 (UTC)
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[edit] Interest rates
The article says:
- Marginal Lending Rate (currently 3% in the Eurozone) A fixed rate for institutions to lend money from the CB
Shouldn't this be a rate for institutions to borrow money from the CB? Barrylb 15:23, 3 Jun 2005 (UTC)
[edit] Reserve requirements
I have removed the mention of a "2% deposit requirement in the Eurozone" because I don't believe such a requirement exists. I've also added a bit about capital requirements. My sources for this are searching [2] using terms "deposit requirement" and "bank regulatory requirement" and [3]. I am of course willing to be proved wrong regarding the reserve requirement. The Land 09:30, 20 October 2005 (UTC)
[edit] Should it not be mentioned that central banks are believed to be high-scale scams?
- If you have a reliable source for this (see Wikipedia:Verifiability), then sure. Notinasnaid 10:38, 15 November 2006 (UTC)
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- Sources include 'Money as Debt' by Paul Grignon (www.moneyasdebt.net - can be viewed on Google video); 'The Money Masters' (www.themoneymasters.com - website also includes multiple quotes by Presidents of states and banks for reference) - this video can also be viewed on Google video); both pages have multiple related links for references.
- The term 'scam' should be better formalised! I would recommend that the phrase be something like: 'the central banking system unnecessarily appropriates government's money into the hands of private ownership via the issuance of bills' - or other ways of appropriation - for example the gradual transfer of fort knox gold from Government to Federal Reserve - see 'Fort Knox' section on The Money Masters. There is also the secondary side effect to this 'scam' that those who run the central bank (generally not elected democratically) have a disproportionate/dangerous amount of power - and thus can control government decisions (including who should be elected to the board) by threatening ressesion or other monitary chaos (see 'The Money Masters'). —Preceding unsigned comment added by 80.42.172.145 (talk) 17:57, 3 November 2007 (UTC)
[edit] Capital requirements
Does anyone know what the following is supposed to mean? "Partly due to concerns about asset inflation and term repurchase agreements, and difficulties in measuring liabilities as accurately as pricing assets, capital requirements are considered more effective than deposit/reserve requirements in preventing indefinite lending: when at the threshold, a bank cannot extend another loan without acquiring further capital on its balance sheet."
This sounds like nonsense to me, but maybe I just don't get it. The usual understanding with banks is that the liabilities are fairly easy to understand (pace strange derivatives, etc); it's the assets that are unclear. I'd edit, but I don't even know what the author is trying to get at.--Gregalton 22:07, 12 December 2006 (UTC)
[edit] Documentry
Some might find this link intresting. http://www.tv-links.co.uk/video/9/6883/10985/68389/95863# 89.16.66.150 04:49, 28 August 2007 (UTC)
[edit] Independence
Why is the section title in scare quotes?
And:
"The main decisions on monetary policy, to name but one example, are made by privately appointed figures independently of any elected political powers. Such is the case with the Monetary Policy Committee of the Bank of England, where the majority power is elected by and given to members of private corporations."
is just a bare-faced lie, isn't it? Wikipedia's own entry on the MPC states that four of the members are appointed by the Chancellor of the Exchequer, and the Governor and Deputy Governors are ... Crown appointments too. —Preceding unsigned comment added by Mk270 (talk • contribs) 17:39, 11 September 2007 (UTC)
... actually, I just got rid of it. Mk270 17:50, 11 September 2007 (UTC)
[edit] Money from Debt
I believe an entire section should be created explaining how a fiat currency is created from debt.
Because without debt, there would be no money.
Alby (talk) 22:22, 18 January 2008 (UTC)
[edit] Who owns the money when it is first printed?
I am sorry if I appear naive, but I am curious to know who owns a nation's currency when it is fresh off the printing press. In Australia, where I am from, the money is owned by the commonwealth of Australia, and is thus publicly owned. The central?/national? bank of a nation as I understand it is the only bank with the authority to print legal tender.
So I guess my question is this: Is it true that in the United States, the Fed is privately owned, printing money that it lends to the U.S. government, which the U.S. government must repay with interest? I guess a similar question would be: who owns the currency of the United States as soon as it comes off the printing press?
This is a very good question. The poster below is correct in that the U.S. Treasury owns this newly-printed money for an insignificant period of time. He/she is also correct in that the U.S. Treasury "sells" the newly-printed money to the privately-owned Federal Reserve for essentially the cost of printing the paper money. The Federal Reserve is then free to loan this money to the U.S. Government with interest, which it earns. After that occurs, I am not sure what happens to the profits. Following the flow of this money is a worthwhile endeavor.
Also, is it just me or does it seem almost purposeful the lack of information regarding ownership of the central?/national? banks of nations. ~pzyktzle 10:11, 23 March 2008 (UTC)
- Actually, I am even more confused than I originally thought. I am now unsure if Australia's central bank the Reserve Bank of Australia is publicly or privately owned. The article tells me that the Commonwealth Bank, which used to be our central bank, is now privately owned. But nothing regarding ownership of our current central bank. Is asking if a central bank (actually, more so the money it prints) is privately owned somehow asking the wrong question? ~pzyktzle 10:24, 23 March 2008 (UTC)
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- Almost all of the world's central banks are state-owned. Even the one significant case of "private" ownership - the US Federal Reserve Banks - is usually described as 'quasi-public'. Consider this: i) the Board of Governors is a federal agency, full stop; ii) most of the nominal owners (banks) of the Federal Reserve Banks are required to "join" (pay money) and may be required to contribute more in future; iii) they cannot sell their shares, transfer them, gain control, etc (they can only redeem them for the amount contributed); iv) after paying expenses and 6% of the contributed capital (to the nominal shareholders), ALL profits are paid to the US Treasury; v) any "surplus" capital retained cannot be claimed by the nominal owners; vi) Many key operating decisions are either made directly by the Board of Governors or require their consent.
- In other words, the "private" ownership of the FRBs - although technically accurate - is an unusual form of ownership, where the owners get almost none of the normal benefits of ownership (right to profits, in particular). Some would simply say it is not private ownership in any meaningful way. Much of the commentary on the web about what the "private" ownership means is conspiracy theory nonsense.
- The reasons for this are historical: most central banks, going back to the first Swedish central bank (Rijksbank?) were originally private - essentially concessions (like the East India Company) granted by the crown. Same with Bank of England, etc. Countries like Canada first established their central banks as quasi-private like the Federal Reserve, and then later just dropped that idea and made them state-owned. In the US, the "private" owners had much more influence during the Depression (that didn't work out so well), and the FRB system was reformed to limit drastically the influence of the nominal private owners (after the war?).
- As for ownership of money (when printed): it depends on the local system. In the US it is owned by the US Treasury at first, then "sold" to the federal reserve. Once sold by the Fed, it is a liability of the Fed. The Fed only promises to redeem your dollar for another dollar, of course, so it's not a particularly problematic obligation.
- Reserve Bank of Australia is a Commonwealth Authority - i.e. government-owned. See page 12.--Gregalton (talk) 07:28, 24 March 2008 (UTC)
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- Thank you for going to a good deal of typing to dish out this knowledge to me. I seem to be running into a hefty amount of "conspiracy theory nonsense" on the web at the moment, but I'm not discounting it yet. I will continue to look further into this, and the Federal Reserve system in particular. ~pzyktzle 06:55, 25 March 2008 (UTC)
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- Thanks for that. I have a couple of questions.
- 1) If the private ownership of the FRBs offers the owners no rights to profits ("ALL profits are paid to the US Treasury") then what is the incentive to own? Especially in light of your points ii) through vi). Additionally, the court ruling in Lewis v. United States, 680 F.2d 1239 (1982) had this to say about the Fed: "Performance of an important governmental function, however, is but a single factor and not determinative in tort claims actions. . . . State taxation has traditionally been viewed as a greater obstacle to an entity's ability to perform federal functions than exposure to judicial process; therefore tax immunity is liberally applied." (See Court Rules Federal Reserve is Privately Owned)
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- 2) How can you state with surety that the Fed pays all profits, and is taxed correctly when "From its founding to this day, the Fed has never undergone a complete independent audit. Congress time after time has requested that the Fed voluntarily submit to a complete audit, and every time, it refuses." (Again See Court Rules Federal Reserve is Privately Owned)
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- Also, your point i) does not really fully stop anything much I don't think. It is not unheard of to have government agencies work towards the profit of private firms.
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- I have looked at a few central banks.
- The Bank of Japan is not state-owned as evidenced by this statement: "In recognition of the fact that currency and monetary control is a component of overall economic policy, the Bank of Japan shall always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government's economic policy shall be mutually harmonious.".
- The South African Reserve Bank "has always been privately owned.".
- The Monetary Authority of Singapore "has been given powers to act as a banker to and financial agent of the Government." strongly suggesting private ownership.
- The European Central Bank is "designed to be independent of political intervention, both from EU institutions and from member states.". This Bank is basically the central bank of ALL countries in the EU.
- So your statement "Almost all of the world's central banks are state-owned. Even the one significant case of "private" ownership - the US Federal Reserve Banks ...." is not as accurate as I first believed. ~pzyktzle 10:29, 28 March 2008 (UTC)
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- ) Ownership (that is, becoming a "member bank") is not voluntary for the vast majority of bank-members. They are required to join. (Some can and do join voluntarily, to get access to direct Fed services - sort of like joining a co-op).
- ) Save-a-patriot is not a reliable source. If you read that court decision carefully, it says "not a government agency for purposes of tort laws." Or somesuch. It does not say that the Fed Banks are not government agencies in other senses. (And again, no-one denies that the Fed Banks are legally privately owned - but under a government charter that removes much of the sense of ownership.)
- ) Audit info is nonsense. The Fed is audited, independently, every year - you can find it on their website. It is not subject to full audits by the GAO (by decision of congress), that is the only sense in which it is not audited. (Congress can change that rule at any time). See fed web-site.
- ) Other examples: many Central Banks are nominally independent of government in the sense that they are not under direct ministerial/government operational control - by design. Government can of course change the laws. This has nothing to do with ownership. With the exception of South African Reserve Bank (I'll look into this) I see nothing in the quotes above that contradicts that point: independent within government but owned by government.--Gregalton (talk) 12:21, 28 March 2008 (UTC)
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- Two follow-up points: if you read that court decision carefully, it also says FRBs are federal instrumentalities in some respects. The decision is only with respect to Tort laws.
- SA Reserve Bank: you are right, another interesting exception. However, to read the full text: "Since its establishment, the Reserve Bank has always been privately owned. Today the Bank has more than 630 shareholders and its shares are traded on an Over the counter share transfer facility market (OTCSTF market) co-ordinated within the Reserve Bank. Except for the provision of the SA Reserve Bank Act that no individual shareholder may hold more than 10 000 shares of the total number of 2 000 000 issued shares, there is no limitation on shareholding. After allowing for certain provisions, payment of company tax on profits, transfers to reserves and dividend payments of not more than 10 cents per share to shareholders, the surplus of the Bank's earnings is paid to the Government. The Bank's operations are therefore not driven by a profit motive, but by serving the best interests of all the people in South Africa. " (My emphasis. Like the FRBs, shares get a fixed payment.)
- Next: "The SA Reserve Bank Act provides for a Board of directors with 14 members. Among them are the Governor and three deputy governors, who are appointed by the President of the Republic for five-year terms. Three other directors are appointed by the President for a period of three years. ... The remaining seven directors, of whom one represents agriculture, two industry and four commerce or finance, are elected by shareholders for a period of three years. ... The Governor and deputy governors manage the daily affairs of the Bank, as they are the most senior executives with full-time responsibility for the workings of the Bank. The current Governor, Mr TT Mboweni, is only the eighth Governor of the Bank since 1921, and assumed this responsibility on 8 August 1999." Government appoints seven of fourteen directors, four of which are govt appointees who manage daily affairs of the bank.--Gregalton (talk) 12:38, 28 March 2008 (UTC)
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- 1 ) I'm not sure I understand. Private ownership of something means that someone puts up personal money to own an asset. I am specifically talking about the private ownership in the Federal Reserve system. Yes to be part of the system you have to pay fees and join, and be subject to a number of government rules. But if, as you say, owners have no rights to profits then I do not understand the point of private ownership, or why people would want to join the system in the first place. Could you illuminate me?
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- 2 ) I have read the court decision fairly carefully. It takes into account a number of characteristics of the Fed in order to determine whether or not an employee (Lewis) could sue the Fed as a government agency alleging jurisdiction under the Federal Tort Claims Act. Agreed the website save-a-patriot.org is an unverifid resource, however this court case is all over the internet. It has official looking record numbers supposedly belonging to the UNITED STATES COURT OF APPEALS, NINTH CIRCUIT (No. 80-5905 - 680 F.2d 1239; 1982 U.S. App. LEXIS 20002). It is even referenced in the wikipedia article for the Fed: Federal Reserve System#cite_note-27. I will see if I can get a transcript from the court. The part of interest here is that supposedly, the Fed is tax exempt/immune.
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- 3 ) If the audit information is nonsense then I shouldn't find anything relating to calls by congress for submitting to a complete audit. Will look for them. In the meantime could you explain what the difference is between the independent audits the fed undergoes every year and the "full audits by the GAO"?
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- 4 ) I see a massive contradiction in using the term state-owned for banks that are independent of any control by the state. If the Bank of Japan can completely disregard the will of the Government of Japan, I would not consider it state-owned as "ownership" inherently implies a degree of control of something. To me, "independent within government but owned by government" is itself a contradiction as independence is effectively the removal of ownership in any meaningful sense. They could be "state-funded" and independent, a very big distinction. As for the European Central Bank, I can't quite fathom how you could see no contradiction in claiming that it is state-owned.
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- Thank you very much for your patience. ~pzyktzle 04:27, 29 March 2008 (UTC)
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- ) For the Fed system, most members are required to be members - i.e. national banks. Others join because it provides them direct access to certain Fed Bank services (clearing, payment systems, discount window? I don't recall all the details, but it's on the Fed's websites) and probably is a bit prestigious. I can't comment on South Africa. But your question is on point: the reasons they join the Fed system are not like the usual ownership motivations.
- ) Fed is free from tax because ... basically because it's government. My point about the websites claims is that it is not deciding whether or not the Fed is private or a government agency, but whether it is a government agency for the purposes of tort, because there are special rules regarding tort for government - but they do not apply to all government agencies.
- ) GAO does a different type of audit. Mainly about policy effectiveness, not about theft and the like. Congress can change this rule if it so wishes, but (so far) has not done so to retain policy independence from Congress and the executive - that is, direct policy: Congress sets general directions and leaves Fed to implement. One can debate whether the audit is sufficient, the right kind, etc., but to say there is no independent audit is just a fabrication.
- ) Few central banks are independent of "any" control. They are (generally) independent of direct control. So are judges, so are some other structures. Look at article on the Bank of Canada for an example: government appoints governors, but tradition holds that direct interference would "require" the Governor to resign. The specifics differ in each country, but they are generally neither (fully) independent nor directly under government control - by design. This is to insulate central banks from being directly manipulated from government (to influence, for example, electoral cycles), or, if you prefer, to insulate government from having to make unpleasant decisions.
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- 1 ) So from you answer, I can deduce that private enterprise joins the Fed system (costing money and a ton of paperwork, subject to lots of government regulations) so that can access clearing systems, a discount window and gaining prestige, all the while not being able to make any profit out of this business. Is that right?
- 2 ) If the Fed is free from tax then we should probably go and clean up this article where in the introduction it says that "U.S. Federal Reserve ... almost all profits of the bank are paid to the government as tax.". As for the court ruling, yes I know. So does this mean you now consider this particular resource reliable?
- 3 ) OK. I find it incredibly hard to believe the Fed is not audited. Who are the independent auditors of the Fed? Could you list one?
- 4 ) Right. So the independence is not black and white and there actually is a degree of control by the government over independent state-owned banks (however tiny it might actually be). I can live with calling them state-owned if that is the case. As for the ECB, to illustrate my point I'll ask you "which state owns it"? Obviously no single state. Thus the term "State-owned" would have to be vastly redefined in scope to use it to describe the ECB. Thus I couldn't see why you would not see a problem calling it state-owned. Unless of course we now define the EU as a state.
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- Synopsis: The whole purpose of my inquiry was to find out if governments control their money supply, in the traditional state-owned way. I have found that most richer countries, including Australia, have adopted an "independent" structure. The purported purpose is to "prevent political interference". Thus they do not own their own money supply, they can only assert political influence on these (mostly) independent entities. What I seem to be finding is that governments hold accounts with these central banks. From here things get very confused. Most places I look say that the governments borrow money at interest from these institutions. Which is straightforward enough and explains government debt to a large degree. Is this the general model? ~pzyktzle 05:57, 30 March 2008 (UTC)
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- Again, most Fed member banks are required to join. They have no choice. They get paid a fixed 6% on their share capital (a tiny fraction of the profits). This is seen as compensation for reserve deposits (on which they are paid no interest).
- Fixed that sentence in the article. No, I do not find the resource reliable, primarily because what is represented as a court decision that says "X" says no such thing.
- KPMG. See [4]. Lots of information on their website.
- EU is owned by national central banks of Euro area. So yes, not owned by a specific state directly. In this context, "state-owned" is a term used to refer to government-owned. (Hong Kong is formally not a state, but does have a separate central bank).
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- I disagree completely with your synopsis. The question of who "owns" the money supply does not make sense. It would probably be a lot more instructive to consult the sites of the central banks or other reputable sources.
- Governments can completely control their central banks and money supply; they frequently choose not to control them directly. Governments do not pay interest to central banks, central banks remit interest earned on currency issued. (Or, if you prefer, governments pay interest to central banks but then get that interest back). Bank issues currency to me; bank buys govt bonds with the money I paid; I get no interest; central bank does; at end of year, govt gets the interest it paid to central bank back. Since the value of the currency I hold has (probably) fallen in value, government has made money from seigniorage.--Gregalton (talk) 07:29, 30 March 2008 (UTC)
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- 1 ) Sorry, but *still* confused. You are saying that private enterprise is forced to join this system ("has no choice")?
- 2 ) I should have been more clear on what I meant by the resource. I meant the actual court ruling itself, not the website. I see exactly what you mean, the Fed has been ruled private for purpose Y. I will also point out that I could also turn around to you and say that the resource you gave me to prove that the Reserve Bank of Australia is a Commonwealth Authority states that "The Reserve Bank (of Australia) is a Commonwealth authority for the *purposes of* the Commonwealth Authorities and Companies Act 1997" page 12. However, I wasn't using the court ruling to point out that the "Fed is privately owned", but that it is tax exempt. Something we both agree on and you have helped rectify the article because of this. (Edit: I have noticed you have still left that the Fed is taxed. Why? Also, what does "other formal arrangements" mean?
- 3 ) Cheers. Will look into KPMG's audit(s) of the Fed.
- 4 ) We now agree (I think) that we can call an independent central bank that can be influenced by the government state-owned. How much influence is another matter. If the amount of influence is minimal to the degree that the bank can do whatever it wants when there is a genuine need from the government, again I would contest the use of the term state-owned. I think Hong Kong is a bad analogy as it is effectively a state run pretty much autonomously from China. The EU I would not consider having anywhere near the same state-like characteristics as Hong Kong. After looking around I am finding the ECB even more interesting than the Fed.
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- I have consulted the websites of central banks. As I said, it is very confusing. It almost seems as if they go out of their way not to explain *clearly* the process of how government and the central bank work together. (A bit like saying vaguely: "other formal arrangements" ;) A lot of them do not mention that the government has a bank account with them. Yet on the news I have heard in Australia statements along the lines of the government borrowing money from the central bank. Naturally I then ask, why are you borrowing your own money if it is yours? Why does the question of who "owns" the money supply not make sense? You have already told me that on printing US money it is "owned by the US Treasury at first, then "sold" to the federal reserve". My synopsis was of the direction of my questioning, and not anything I was claiming as fact. Please do disagree and point me in the right direction knowledgable sir. ~pzyktzle 12:35, 30 March 2008 (UTC)
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- See [5]. "National banks chartered by the federal government are, by law, members of the Federal Reserve System. State-chartered banks may choose to become members of the Federal Reserve System if they meet the standards set by the Board of Governors. Each member bank is required to subscribe to stock in its regional Federal Reserve Bank, but holding Federal Reserve stock is not like holding publicly traded stock. Reserve Bank stock cannot be sold, traded, or pledged as collateral for loans. As specified by law, member banks receive a six percent annual dividend on their Federal Reserve Bank stock;" Yes, national banks are required to contribute capital to the Fed system.
- State-owned: my point was that the term state-owned is used loosely to mean government owned. It does not imply state in either the U.S. or international sense of "statehood."
On your notes above:
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- 2) Money is simply transferred to the govt. Bank of Canada simply says "transferred to govt." Fed says "Payments to U.S. Treasury as interest on Federal Reserve notes." So the Fed issues notes (currency), and buys interest-bearing assets - typically government bonds. Then it gives the interest earned back to the government. Different places refer to it differently, it amounts to the same thing: cash money is an interest-free loan to the government, which central banks usually invest in interest-earning assets.
- 4) Degree of influence. The government can do whatever it wants, if it changes the laws. Govt designed the system to stop itself from doing (excessively) stupid stuff with monetary policy. Central banks everywhere balance their independence against knowledge that the system needs some type of legitimacy, or government will change it (as has been done in the past, numerous times). This is usually true of quasi-independent govt agencies.
- "Government borrowing from central bank": in a normal operation (where no net new money is put into circulation) a central bank can trade government debt (bonds) for cash from the central bank; government spends the money (paying bills/salaries), putting money into circulation); the central bank then exchanges (sells) the bonds for cash, taking that money back out of circulation. This is functionally the same as government selling the bonds directly to the public (the market) for cash - so normally even if governments "borrow" from central banks, they are really borrowing from the market.
- The reasons to do it this way (instead of having an auction of the bonds) are largely technical/operational - depending on the local environment, and I don't know the details about Australia - if you look at reports of Bank of Canada, the BoC is fiscal agent for the government. It manages all cash accounts, debt, and foreign exchange reserves.
- None of this implies a change of ownership of the central bank from state-owned.--Gregalton (talk) 16:09, 30 March 2008 (UTC)