The future of finance, and in particular saving it from a popular backlash against the global financial crisis and related crisis-management policies, has rightly become a matter of great concern. There is broad agreement that finance has, as in the past, the potential to do good, which should be harnessed by all. However, it is essential to minimise its potential to do harm. In the commendable search for good finance, central bankers have not merely a stake but also have a legitimate role to play. From central banker's point of view, there are several issues in this search for good finance for the future, but there are three inter-related issues that I want to comment on today: (a) how to ensure that the financial sector serves the society better; (b) how to integrate financial sector policies better with national economic policies; and (c) how to ensure that the financial industry functions as a means and not as an end in itself?
Major issues confronting the finance industry were articulated by Sir Andrew Crockett in this forum last year (Crockett, 2011). The presentation today is in many ways a supplement to it. Sir Andrew has made an enormous contribution to the global community of central bankers and I would like to dedicate this address to Sir Andrew.
This presentation considers many issues raised on the future of finance (e.g., Ferguson, 2009, Sheng, 2009; Chittenden, 2010; Roubini & Mihm, 2010; Turner & others, 2010; Pringle and Jones, 2011; CAFRAL-BIS, 2011; Blanchard & others, 2012; Shiller, 2012). My reflections are moulded by not only a decade in central banking but also many years in macroeconomic management in federal government and the Bretton Woods Twins, in addition to a much longer period at provincial and local levels of government dealing directly with the public. Keeping in view the composition of today's audience and the key role of central banks in finance, I will be exploring select themes of operational significance to central banks at the present juncture.