But these banks have been hit by a series of powerful shocks. (i) Monetary policy The first is the shift from centralised control of the economy to a market-based system. Instead of directing money to meet enterprises’ deficits - a job which required a large branch network and hordes of bureaucrats - the aim is to influence the behaviour of the economy by using indirect instruments of monetary policy to guide interest rates and the exchange rate, and to conduct the prudential supervision of the new commercial banks. But many of the bureaucrats find it difficult to work out which bits of information they need and how often, and prefer instead to demand a substantial volume of data without prioritisation. Some of the staff of eastern European central banks, used to passing on raw data which can be checked against enterprises’ targets, find it difficult to analyse information with the aim of learning something about the behaviour of markets, consumers or firms. The simple questions, “Why are we doing this?”, “What does this mean?” can be too hard to ask. New goals, however well-enshrined in the constitution and law, do not change culture overnight. BIS Review 33/1997  -5-  The second culture shock has been the move from a monobank to a two-tier banking system. The old system had two separate monetary circuits - one for cash (used mainly by individuals) and the other in transfers between bank accounts (used by enterprises).
Mr. Davies looks at whether contemporary forces are eroding distinctions between central banks and pushing them towards some common model Text of the London School of Economic and Political Science Annual Lecture on Central Banking delivered by the Deputy Goveror of the Bank of England, Mr. Howard Davies, on 4/3/97. Central bankers are famous for their obsessive concern about credibility and consistency. By that token, I should be drummed out of the club I have only recently joined. Because when the Governor stood here a little over a year ago, he assured the audience that he was delivering the fourth and last in the series of LSE Bank of England lectures. But, in keeping with the usual practice of successful television shows, I am here tonight to open a new series. The LSE seemed to think you would prefer that to filling the schedule hereafter with repeats. This new series picks up where the last left off. In 1996 the Governor noted there is nowadays a broad consensus that the raison d’être of central banks everywhere is the pursuit of monetary and financial stability; but he observed that once you go beyond that level of generality, each central bank is unique - in terms of its constitutional position, the range of its activities, its size, structure and organisation. Many of these differences are the result of history. The question I plan to address tonight is whether contemporary forces are eroding these distinctions between central banks and pushing them towards some common model.