 Thank you very much Mario, and thanks to the ECB for the opportunity to address this August group. I was very glad to see when I came down for the cocktail hour that most of you had voted to remain, not to leave, so I do appreciate that. I am not going to speak about Brexit. I was invited to do this keynote on pretty short notice, but not that short notice. So I had prepared a different subject that you can see right there. The only thing I wanted to say is that most of us in America understand that the well-being of golf courses in Scotland is not high on the list of issues raised by the by the Brexit. One thing that is raised obviously and is remained of course to what I want to talk about tonight is the importance of independent central banks, and we're seeing that in action sort of literally hour by hour since the British vote and it's by no means over. I think President Draghi's got a lot of work to do still and I'm glad to see you here. So let's see. There we go. That's a picture of Montague Norman for those of you who don't recognize him, and I want to start broaching the subject of the proper domain of central bank independence by this not quite a quotation from Norman, but from a sort of quasi-biographer of Norman. Montague Norman used to dream that the BIS, from which a number of you have just come, would one day foster a core of central bankers entirely autonomous of governments. That's my emphasis, and I want to come back to this notion of entirely autonomous of governments. Why did he say that? Because even in those days when nobody was thinking about monetary policy, the way we think about it today, the strong belief was that politicians could not be trusted to produce sound money. So sound money had a different meaning than in a fact that had a lot to do with the gold standard and a number of other things. But the notion of sound money in the hands of autonomous, but maybe not completely autonomous central banking is by no means archaic and indeed is the essence of central banking today. The point I want to make for openers is that independence, central bank independence implies monopoly power. There. I can't actually see the, oh, okay. I see a screen that I can see. Okay. There. Independence of any kind implies monopoly power. That is to say you, the central bank, or whoever's independent, have control of the lever and other people do not have control of the lever. And what I want to focus on tonight is control of the lever over what domain? What is the proper important necessary domain of central bank independence? And where maybe do we not think central banks should be independent in contradistinction to Montague Norman? So does anybody recognize that person? He's starring on Broadway these days. Alexander, these are the five classic functions of a central bank, four of which were actually known to and understood by Hamilton in the 1780s. The last was not monetary policy. A modern list of what a central bank does starts with monetary policy. The guardian or operator of the payment, I'm going to come to each of these in a second, under which I subsume the fiscal agent of the government, which central banks have always been. Either the supervisor or regulator of both or both of banks or financial institutions more broadly. The thing we're all thinking about in the last few days, the guardians of financial stability, which may imply that you're a lender of last resort. I come back to that shortly and of course monetary policy, the one that most central banking gatherings are focusing on in recent decades. Let me take these one by one, starting with the payment system. Where the central bank need not actually operate and run the central bank, run the payments mechanism, sorry, but really needs to supervise it and make sure it works as I suggest here. You can fill in your own sentence better than the cable TV. At least better than my cable TV system. We need much more reliability in the payment system than that and central banks have that responsibility. Do they have a monopoly over it? Well, no, of course. Lots of institutions are involved in the payments mechanism, ranging from banks to Bitcoin and beyond. They're even newer things than Bitcoin. I don't even know their names. So in this domain, central banks are used to having competition in providing the means of payment. It's not a new thought, but the notion, the interesting notion here that bears on central bank independence is the market share, so to speak. As the central banks market share in providing say currency shrinks, the seniorage shrinks, and that starts at some point to raise questions of central bank independence because budgetary independence is crucial part of central bank independence. Second on the list is the supervisor or regulator of either banks or financial institutions more broadly. This to me is at least the three by three by three classification. The central bank could be the supervisor, could be the regulator. Those are not the same thing as everybody in this room knows, but most people outside this room don't know. Or both. And as I said, it could be over banks or all financial institutions or maybe something in between like the so-called SIFIs, systemically important financial institutions. And we could limit the central banks either micro-prudential supervision or macro-prudential supervision or give both tasks to the central bank. So that's a lot of cells, a lot of different ways a country could organize supervision and regulation. And central banks can and most central banks do have competition in most of those cells rather than monopoly. The main point I want to make here is with that many different choices to make, there is a huge amount of room for differences across countries. This is not one size fits all. There's no reason to think it should be one size fits all. And I just put down two examples of this. I was actually going to use the UK, but I just crossed that out. The ECB as you all know was originally written out of the supervisory regulatory business by design in the treaty. But then put in, I say here by necessity, you can put in whatever verb you want. A strong feeling in Europe that the ECB better get into this business, which it's now in of course. The Federal Reserve has always been in the business of soup and reg as we call it at the Fed, but has had multiple competitors always. Most Americans that are thoughtful that know anything about this will say too many competitors. We probably have too many supervisory and regulatory agencies in the US, but there has never been anything close to a Federal Reserve monopoly over this function. The Federal Reserve has always understood that it shares the responsibility with us, which means of course that it doesn't have independence. It can't just move unilaterally. I come now to the third thing on the list with the thing that's on our minds most. As we meet here this evening, which is financial stability, a concern that dates back literally centuries. So I guess that's an old frigate going down with a lot of silver and gold or something on it. But has changed form over the centuries when we think about what is financial instability actually mean. That changed form again on Thursday night and Friday morning, a new sort of financial instability, which I didn't have in mind when I wrote this slide a few days before that. And just by the way, Montague Norman and his colleagues, the so-called Lords of Finance, didn't do a very good job on this function. So who else, if you can't rely on the central banks unilaterally to take care of this, who else? Well, I think it's inevitable frankly that in a crisis situation, the Treasury or the finance ministry, whatever your country calls it, is going to be needed. And I can't imagine that Mark Carney and George Osborne aren't talking to each other many times per day. And we wouldn't want it any other way, even those of us who are big believers in central bank independence. And finally, if a crisis is serious enough, it's probably going to need some kind of a fiscal remedy. We finally got on the road to fixing the financial crisis in the United States when the TARP passed Congress and the Congress of the United States allocated up to $700 billion to this task. And that was not a sui generis event. That's what you expect to happen in a crisis. Eventually, if it's a serious one, if it's a minor one, the central banks can fix it. If it's a serious one, there's going to have to be a fiscal component of the remedy, and that component will probably be an important component. And so as it says on the last line, that means there's no monopoly. It's not like the central bank is the monopoly provider of financial stability services. There is no real potential for monopoly there, and with non-monopoly goes some dependence rather than independence. I come to the fourth, which follows logically from the third. This is going to be one of the few audiences on earth, this and Jackson Hole, that actually recognizes this guy. Vitor knows immediately who it is. This is Walter Badgett, who prescribes what central banks are supposed to do in a financial to avert or mitigate a financial crisis. Here we have what I call a natural monopoly. Only one institution can print money, and if you're going to be the lender of last resort, you almost certainly have to have the ability to print money. And that's the central bank. In fact, that's almost a tautology. We call that institution that can print money the central bank. So it does have a monopoly on that. It is an independent actor on that, and this function must be handled with great care. For a number of microeconomic reasons, which I just subsumed under the title moral hazard. You can be careful about who you're dishing money out to. And a macroeconomic reason, which is inflation. You dish out too much of this. You're going to get inflation in the end. I want to call your attention a bit of a paradox, which I hardly ever hear anybody mention. And that's this. A lender of last resort loan, unless it's very small, if it's a big one, to an important institution, is going to be a political event. You can't expect the politicians to keep quiet about it. You can't expect the body politic to ignore it as some sort of a technical fix. And yet we give this function to a bunch of non-political technocrats that we call central bankers. We should just understand that this is a very tough position to put a central bank in. Here's a highly political thing we're putting you in charge of it, you who have not been elected by anybody. But as somebody has said, that's what they pay them the big bucks for. It goes with the territory of running a central bank, but it's a tough one. I come finally to the last with the one that most conferences of central banks focus on, monetary policy. Before the crisis, and by the way I mean the 2008 crisis, not the 2016 crisis, central banks were moving toward a consensus. And that consensus was the way that you do monetary policy is you control an overnight interest rate in order to achieve an inflation. And of course that's exactly what the ECB had been doing, what the Bank of England had been doing and a number of other central banks. Not quite what the Federal Reserve has been doing, I'll mention that. I'll come back to that in a second. But the main point is that since the crisis, since the 2008-09 crisis, monetary policy has become much broader. Both as to the instruments, so it's not any longer only about the overnight interest rate, it's about QE, quantitative easing, it's about forward guidance, and there's a dot, dot, dot there because there's other stuff in there, those are the two big ones. And in addition to that, the goals have been broadened. Financial stability, which has been a tacit goal of central banks forever, and that's why I appeared on that initial slide, has become an explicit responsibility of central banks in many countries, including in a kind of left-handed way the United States. The U.S. Congress did not change the Federal Reserve Act but did thrust responsibilities upon the Federal Reserve. A curious thing to me, and I said I would come back to the Federal Reserve, is that despite, I think it's a consensus view, that the Federal Reserve weathered the storm of 2008-09 pretty well. And the U.S. economy has done, you know, graded on a curve defined by other countries pretty well since the bottom of the recession. The notion of a dual mandate, that there's an employment responsibility for the central bank, has not spread around the world. It still distinguishes, at least in verbiage, I don't really think in action, but at least in verbiage distinguishes the Federal Reserve from most other central banks, and those of you who know me know that I've long thought and still think that's a good thing. Now, on monetary policy, I want to remind everybody of something, of course you know, this is central bank kindergarten. The main argument for giving central banks independence, CBI, central bank independence, there are others, but the main one is that if you give this responsibility to the politicians, they have very short time horizons and a consequence of that is they will inflate too much. This goes back to monarchs clipping the currency. This is a very old consideration and is really central to the argument for making the central bank independent. And I believe that, but I want to pay, call your attention to two buts. I think there are two buts that are, at least in central banking circles, often ignored. The first but is what if inflation is too low rather than too high? Remember what I said a moment ago, that one reason we don't want to put this in the hands of politicians is they'll make inflation too high. What if the problem is that inflation is too low? This is a pretty new problem, but by now a pretty widespread problem. This is not just one country, it's not just Japan anymore. And I think it's a fair to say at the risk of sounding critical of some central bankers, central banks, that success in pushing inflation up, our inflation rate is too long, we got to get it up, is kind of minimal so far. Not that they're not trying, but the success is much less say than the success of central banks moving inflation down after the great inflation in the 70s and beginning of the 80s. So you know this, but here's a picture of where we are in the United States. This is the CPI, 12 month moving average, going all the way back to 1948 and you see we are here. If you've got really good eyesight or you're close to the screen, you can see the feds got that pushing up a little. But you got to be pretty close to the screen or have good eyesight to see that. And the feds target as everybody here knows, oh by the way maybe you don't. For this number, the feds official target is not for the CPI, for this number CPI it's 2.3, 2.4. That's the translation of the feds target. Fed hasn't been there in a long time. But of course it's not only the fed, here's the ECB. This is the Euro area hiccup. Consumer prices. Harmonized index of consumer prices. I get that right? Harmonized index of consumer prices. The ECB website for some reason starts at 95, so this just came straight from the ECB's website a few days ago. And the ECB's target as everybody here knows is 2 and it sort of looks below 2 for a while. And so I just give you here the two most prominent central banks in the world, but they're not unique in having inflation too low for quite a long time. So that's the first point that maybe central banks are better at bringing inflation down than they are at pushing inflation. Second point is, and I'll explain what I mean by this in a second. There's a strong, and I've written about this before. Some of you may have read some of what I wrote. What if the central banks listen too closely to the markets in the sense that you listen to your mother or should anyway, as opposed to listen to the radio? It's curious. I used to think it's curious that in the English language we use the same verb for these two meanings. What I've learned teaching central banking at Princeton for many, many years where more than 50% of the students are foreign, way more than 50%, and for many, many languages. This is true in many languages that the verb to listen has these dual meanings. They're really quite different. You need to listen to the markets as a source of information. If you don't do that, you're being foolish. You don't need to listen to the markets as a source of direction and orders. Here's what you should be doing to make us happy. That's not the job of the central bank. Ironically, so this is where it ties back to what I said before, about short-time horizons. If central banks listen to the markets in the listen to your mother sense, they will tacitly and automatically inherit the short-time horizons of the markets. And if you think politicians have short-time horizons, you should talk to traders on trading dust. I mean, they think the politicians' time horizons are like two infinities. That's to the next election. That could be two years or something, not a half an hour. So there is a danger there. And that's an important but to the monetary policy independence notion that you can listen in the wrong way and too much to financial markets. Now, let me raise another question very briefly. Is it possible to make your central bank too independent? Well, in principle, absolutely yes. We don't want central banks to be autonomous of governments. That's why I put that Montague-Norman phrase up at the beginning. I don't think they want this at the BIS either, although that was Norman's vision. It is an irony which seems very appropriate in this gathering. If you can remember back in 1999, quite a few observers thought that the ECB's design might make it too independent. It was called, and I think correctly, the most independent central bank in the world because the law, the ECB law, is in a treaty and a treaty is virtually impossible. To change. And the ECB has, it wasn't originally, I guess it was originally 11 governments, now 19 governments quote above it, which basically means functionally there's no government that is sitting on top of the ECB. And that stands in contrast, sharp contrast to the Federal Reserve. I don't know how many of you know this, probably most of you in an audience like this. The Federal Reserve is established by an ordinary law of Congress which Congress could repeal tomorrow. It's not in the Constitution. There's no special protections. And by the way, Janet Yellen doesn't have any doubt about which government is watching what it does. I'd like to finish up with some survey, oh sorry, I shouldn't have left that out. So we don't hear much of this about the ECB these days. I don't think Mario is going to sleep at night worrying about he's too independent. In the United States, as I think a lot of you know, there's a significant backlash against the Federal Reserve for showing how much unchecked and unbalanced power it has. The United States has this strange form of government that's built on checks and balances. And if you ask who's checking or balancing the Federal Reserve, it's sort of hmm, I don't know, probably nobody except in drastic things. As I said, Congress could do drastic things to the Fed and there are some members of Congress that are thinking about that now, but they're far from a majority. All right, sorry, I left that out. What I want to finish with is a couple of questions, survey questions about what the crisis, and again I mean the 2008-09 crisis has done to the picture of central bank independence. These numbers, which I'm going to show you in a moment, come from a survey that I did along with Michael Ehrman, who's now at the Bank of Canada, but coming back to the ECB. Jacob Dahan and David Janssen. Forgive my trying pronounce Dutch names. I do the best I can, but it's not very good. I'd like to, by the way, a number of you are actually survey participants, at least we ask you. And I'd like to thank you all personally. Excuse me a chance to thank a bunch. I don't know who you are because I wasn't looking at that. But those of you who responded to this questionnaire, both central bankers and academics, we had separate but very similar questionnaires for the two. So I would like to thank you all for giving us data. Here's what the data looked like. Pretty interesting on the question of whether central banks gained or lost independence during the crisis. The green is the central bankers. The red is the academic. Same question basically, but not the same answers. You can see that the central bankers are highly concentrated on neither gained nor lost. It didn't change. And if you look at the two tails, the gains tail is much bigger than the lost tail. Look what the academic said. Almost nobody believed in gained, but neither and lost independence were sort of in a flat tie among the academics. I've surveyed groups like this before and I can tell you differences like this are not common. By the way, I guess I should have said we polled academics who had some expertise in macroeconomics and finance and monetary economics. That sort of thing. This was not a bunch of labor economists or I don't know, I shouldn't pick on labor economists. They're actually some of the best. I mean, if macroeconomics was as good as labor economics, I'd be a happy man. So that's a pretty interesting discrepancy. Here's the second question we asked about this. How much is central bank independence under threat now or in the near term future in your countries? And again, very different perspectives. Whoops, sorry that didn't all come. I lost something there. The red is again the academics. The green is the head of central bank. If you look at what the central bankers said, there's a huge plurality, a majority, a strong majority saying none. They don't see any threat to their independence and most of the rest say it's too early to judge. We have very, very few central bankers, 20% saying either a little or moderate threat to their independence. Look what the academics living in the same countries, presumably seeing some of the same thing, thought. A large, the plurality, the near majority saying a little threat and a very substantial minority saying a moderate or a lot. Those are two choices I combined to make this slide. And interestingly, maybe the most interesting thing for an academic like me is the very last thing. How many academics thought it was too early to judge? No. We're judging. They didn't see it that way at all. So I think this juncture of views is pretty surprising and pretty interesting. By the way, those are central bankers and academics. You can tell which is which. And my last word is let's hope the central bankers have it right. Thank you.