Andrew Hauser: Bigger, broader, faster, stronger? How much should tomorrow's central bank balance sheets do – and what should we leave to financial markets? Some principles for good parenting

Speech by Mr Andrew Hauser, Executive Director for Markets of the Bank of England, at the International Finance and Banking Society (IFABS) 2021 Oxford Conference on "The Financial System(s) of Tomorrow", Saïd Business School, University of Oxford, 13 September 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I am delighted to be opening the 2021 IFABS conference. Your subject is 'the financial system of tomorrow' – and I want to kick things off by doing some crystal ball gazing at the role that central banks, as market participants, might play in that future system.

It's actually reassuring to see in that crystal ball that central banks have a role at all. Because whenever central bankers get too big for their boots, it's worth reminding them that, for most of history, humankind has prospered without them. As late as 1900, there were only 18 central banks globally.1 Just over a century later, speakers at the Bank of England's 2017 inflation targeting conference predicted the passing of 'peak central bank'.2 And the favourite pastime in cryptocurrency circles is to imagine a world – immeasurably superior in their view – in which the rulebooks, committees and hallways of Frankfurt, Washington, Tokyo and London have been replaced with a few tightly-coded algorithms floating in cyberspace.

Yet as of autumn 2021, central banks dominate financial market discourse as never before. There's been particular focus on the sharp increase in the size of central bank balance sheets, most recently as the result of the extraordinary steps required to respond to the economic impact of Covid. In due course, those balance sheets will start to shrink again as the recovery takes hold. But as that tide recedes, what's left will not be what we knew 10–20 years ago. And that's because fundamental shifts in economic and financial structures mean that central bank balance sheets are also set to play a much broader role in the future. Helping to meet the heightened demand for safe assets in financial markets. Playing a more active, countercyclical part in monetary policy setting. And potentially providing new retail payment media, in the form of Central Bank Digital Currencies.