ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Society, Economic Policies and the Financial Sector

How can central banks ensure that the financial sector serves society better? How can financial sector policies be more closely integrated with national economic policies? How can it be ensured that fi nance functions as a means and not an end in itself?

I am grateful to the Per Jacobsson Foundation, in particular Chairman Guillermo Ortiz, for conferring on me the honour of delivering the Per Jacobsson Foundation Lecture for 2012. This is an edited version of the text of the Per Jacobsson Foundation Lecture 2012 delivered in Basel on 24 June 2012.

The future of finance, and in particular saving it from a popular backlash against the global financial crisis and related crisis-management policies, has rightly become a matter of great concern. There is broad agreement that finance has, as in the past, the potential to do good, which should be harnessed by all. However, it is essential to minimise its potential to do harm. In the commendable search for good finance, central bankers do not have just a stake but also a legitimate role to play. From a central banker’s point of view, there are several issues in this search for good finance for the f­uture, but there are three interrelated issues that I want to comment on: (a) how to ensure that the financial sector serves society better; (b) how to integrate financial sector policies better with national economic policies; and (c) how to ensure that the financial industry functions as a means and not as an end in itself.

The discussion here considers many issues raised on the future of finance (e g, Ferguson 2009; Sheng 2009; Chittenden 2010; Roubini and Mihm 2010; Turner and others 2010; Pringle and Jones 2011; CAFRAL-BIS 2011; Blanchard and others 2012; Shiller 2012). My reflections are moulded by not only a decade in central banking but also many years in macroeconomic management in the central government and the Bretton Woods Twins, in addition to a much longer period at state and local levels of government dealing directly with the public. I will explore select themes of operational significance to central banks at the present juncture.

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