In many economies where central banks are not yet independent, there is substantial support for independence and tangible progress toward making that happen. Alongside this evolution, central banks have become more transparent about their objectives and about the framework they use to conduct policy. Despite the substantial degree of convergence in the prevailing model of a modern central bank, the Fed still is different in a number of respects from the institutional arrangements produced by the latest wave of reforms in central bank arrangements in many of the major economies. Two things in particular distinguish the Fed in this respect: the first relates to the scope of the responsibilities we have for financial stability and the second to our monetary policy regime. The central bank of the United States, unlike the model now prevalent in the other major economies, integrates in one institution responsibility for the principal instruments relevant to financial stability – monetary policy, the lender of last resort responsibility, supervision of the major bank-centered financial institutions, and oversight of the payment system. This was true at the inception of the Fed. Then, as now, the rationale for this model rests on two important judgments. One is that monetary policy decisions will be wiser and the conduct of monetary policy more effective if informed by the direct knowledge of the financial system and the economy that comes from responsibility for bank supervision and market and payment system oversight.
Therefore, striking the right balance in terms of the interest rate differential is of the essence – after the substantial tightening undertaken so far, translating into money market rates increases by almost 200 bps (a normal development given the size of the inflation differential), it is probably wise to proceed more cautiously from now on. As such, the future action of the NBR is likely to depend on how the process of monetary policy normalisation will be unfolding in Europe. Policy normalisation is a question of “when”, not “if”. It will eventually gain momentum and the impact of major central banks’ policy reversals on emerging economies should not be underestimated. When the tide eventually hits, the extent of the damage depends on how vulnerable emerging economies are to external financing. A contained current account deficit, a long average maturity on public and private foreign currency debt and a proper policy mix will help limit the negative externalities. Summing up, keeping internal and external imbalances in check is the only way our economies will be able to cope with the strong volatility headwinds ahead of us. Indeed, it would be a shame if the necessary reforms were not undertaken now, while there is a window of opportunity. 14 May 2018, Bodrum, Turkey  3/3  BIS central bankers' speeches