They affect people’s lives greatly, supporting jobs and incomes, a stable cost of living, an adequate supply of credit, confidence in money. But the impact of central banks’ tools is often indirect and lagged; it is difficult for people to observe these benefits in their everyday lives. When people get a job or a pay rise or a loan, they tend to attribute this to their own good luck or good management. Rarely do they link it to actions taken by central banks, months or perhaps years earlier. The benefits of central bank actions are, for most people, articles of faith rather than fact. These days, with trust needing to be earned, this puts central banks at a natural disadvantage. We see this pattern in other professions. In surveys, the general public are typically mistrustful of politicians and bankers, who appear close to bottom of their trust league table. Yet their trust scores for local MPs and local bank branch managers have remained high because of their closer connection with people’s lives. Central banks, operating economy-wide, perhaps face some of the same challenges as bankers and politicians. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The second reason trust proved fragile is because its foundation is public understanding. Once public trust is lost, public understanding becomes crucial to restore it. The hope was that the revolution in central bank transparency initiatives had provided that improved public understanding of the economy and central banks.
For a review of Norway’s monetary history, see Eitrheim, Ø., J.T. Klovland and L.F. Øksendal (2017). A monetary history of Norway, 1816-2016, Cambridge University Press. 7 Deposit money is also reduced when customers withdraw cash. However, since cash is part of the money  supply, the total money supply in the economy does not change. 8 8/9  BIS central bankers' speeches  8 In isolation, diversification reduces banks’ funding risk. Increased use of wholesale funding may lead to slower  growth in the money supply than in credit. Banks also hold liquidity portfolios containing highly liquid securities that can be sold to compensate for deposit withdrawals. This also reduces banks’ risk. 9 For a more detailed explanation of how money is created by banks, see “Money creation in a modern economy”,  Bank of England Quarterly Bulletin2014/Q1, and Bernhardsen, T., A. Kloster and O. Syrstad (2016) “Alternative virkemidler i pengepolitikken – Den nødvendige monetære økosirk” . Staff Memo12/2016. Norges Bank (Norwegian only). 10 Lehman Brothers was an investment bank and did not accept customer deposits. However, as the bank issued  short-term paper and took part in repurchase agreements, which are included in M3, Lehman Brothers created money. The closure of Lehman Brothers led to investor flight from money market funds, very high money market volatility and higher demand for cash from US bank customers. 9/9  BIS central bankers' speeches