How do we know, in an uncertain and everchanging world, what precise path of interest rates is necessary to stabilise inflation in the medium term? That raises questions about both what we do and what we say. (a)  What we do: The role of money and the nominal anchor  Let me start with what we do and how we provide an anchor to the price level in the long run. With a paper currency, expectations that the future price level will remain stable are an article of faith. Such expectations are the basis of the trust without which people will not willingly use paper money. They reflect beliefs about how the central bank will react to events. Given our current arrangements, the anchor for expectations of the future price level is the judgement and character of the men and women who currently, and will in the future, serve on the Monetary Policy Committee. That is a crucial difference between money as a standard of value, where its value is determined by the judgement of a group of experts, and the standards of weights and measures, such as the metre, kilo or second, which are based on objective scientific measurement. I hope that one day the Governor of the Bank of England will be regarded as occupying a position similar to that of the Chief Executive of the National Weights and Measures Laboratory.13 For the time being the value of money will depend upon the discretionary judgements of the MPC.
Otherwise, pockets of financial exclusion (for instance among our elderly) could arise, or the risks deriving from uninformed financial purchases could be compounded by those resulting from the use of an unknown digital channel. The videos presented have adequately captured the importance of the concept of responsible finance. This was, indeed, the central slogan of the 2020 Financial Education Day. However, not only have they captured the concept adequately, they have also been able to project it towards one of its most important components: responsible consumption. In this regard, I would like to highlight that exercising this responsibility involves all players. First, customers (all of us), as many videos have accurately illustrated, must exercise responsible consumption. This requires us to assess our own available resources and borrowing capacity. In short, the idea is to avoid excessive over-indebtedness, which we know generates highly adverse effects that influence our life decisions over an extended period of time. Second, such responsible behaviour must be demanded of financial institutions, which should practice what we call “responsible lending”. This entails properly assessing the creditworthiness of the potential customer before granting financing. Lastly, official authorities, and supervisors in particular, should promote this responsibility and monitor compliance as a key element in ensuring the stability of the financial system. And nor should they rule out the possibility of taking action if deemed necessary.