I see this as necessary because there is a risk that the Federal Reserve could be changed in ways that might impair our ability to achieve our primary objectives – namely, full employment and price stability. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. The current debate surrounding this nation’s central bank is not new, but rather dates back to our nation’s independence from Great Britain. The notion of a central bank in the United States has nearly always been controversial – in concept, design and practice. So much so that the charters of the first two U.S. central banks, the First and Second Banks of the United States, were allowed to lapse. The United States, in contrast to many of our European counterparts, had no central bank from 1836 to 1913. During this period, the economy was prone to financial panics. The rapid development of the 19th century American economy, including the westward expansion made possible by railroads, outstripped the ability of the private banking system to satisfy the nation’s needs for an elastic currency and a stable supply of credit. Ultimately, the Panic of 1907 – in which J.P. Morgan, the leading financier of the day, played an outsized role in responding to the crisis – was the catalyst that turned the tide back in favor of establishing a central bank.
Structural shifts are also taking place at the national level in most of the emerging economies. These include the demographic shifts which are transforming the workforce. The demographic structure has an increasing component that comprises a young population and a growing middle income segment. This trend is exemplified by consumers that have become more discerning, with higher expectations. This is also reinforced by increased longevity. The workforce is also progressively affected by the growing urbanisation which is becoming an important feature in most emerging economies. The international, regional and national financial landscape also continues to be significantly transformed. At the international level a growing number of new financial centres will emerge. BIS central bankers’ speeches  1  There will also possibly be new international reserve currencies and a greater network of financial institutions that originate from an increasing number of emerging economies from different parts of the world. This will facilitate greater inter-linkages between financial systems, especially among the emerging economies. These evolving developments will result in an increased interconnectedness of financial markets with the consequence of increased contagion and interdependence. Increasingly financial systems have also become prone to crisis. The recent global financial crisis has prompted the international community to respond with wide-ranging fundamental reforms that is also transforming the international financial system. At the regional level, the Asian region has become more cohesive with regional financial integration intensifying to facilitate a more efficient allocation of financial resources in our region.