Few people will have heard of BIS or the Bank of International Settlement, but it is a kind of central banker’s central bank. BIS was established in 1930 with the aim of overseeing the repayments (war reparations) imposed on Germany at the end of the Great War under the Treaty of Versailles. It is the oldest international financial institution in the world and focuses on international central bank cooperation. It aims to promote monetary and financial stability within the international community. BIS has a membership of 60 central banks including the US Federal Reserve; the Bank of Japan; the Bank of England; the European Central Bank and the People’s Bank of China.
In its annual report, the BIS has called for an end to the era of central banks “doing whatever it takes” to support their respective economies through stimulus measures such as quantitative easing and bond swaps which have been in place, to various degrees, since the global financial crisis struck six years ago.
The BIS is arguing that central banks have played their part in fostering economic recovery and that for a return to strong and sustainable growth, governments need to do more. In its view, the worst of the crisis is now behind us and governments need to support their economies by reforming labour markets and addressing structural issues which hamper growth. It claimed that the actions of the world’s central banks had bought “time for others to act” and that reforms need to be enacted to restore productivity and growth and to consolidate fiscal balances and repair balance sheets. The stimulus measures had enabled some governments to reduce the costs of servicing their deficits by forcing down long-term borrowing costs through schemes to purchase government bonds. Whilst this is obviously a good thing (at the nation state level, anyway), BIS is arguing that it has allowed the private sector (banks) to delay overdue reforms which are needed for sustainable growth in the future.