A key element in the art of monetary policy is coping with change. Change is going on all around us; the role of the Fed is to cope with that change as it fulfills its three primary missions: managing domestic monetary policy, regulating bank holding companies and banks, and serving as a lender of last resort for the banking system. In the 1990s the most important change that central banks will be facing is the globalization of monetary policy, so here I mainly discuss the problems central banks will have in coping with that change with reference to globalization of monetary policy.
There are many ways a central bank can carry out its mission. For example, the Fed has a formal structure while the Bank of England works more informally. Since most of this volume will focus on the Fed, let me add some perspective and briefly discuss the Bank of England before I specifically discuss the changes central banks must cope with as they deal with the ongoing globalization of monetary policy.
The Bank of England, which was founded in 1694, has 300 years of experience in being a central bank. It conducts regulatory policy in a flexible style; its powers are broad. The Bank of England is the banks' superviser for regulatory purposes. It takes care of monetary policy and the discount window; it mandates the foreign exchange policy; and it is also very much involved (in an indirect way) in the selection of key people at the various banks.
Because its officials mix freely with the banking community, the Bank of England traditionally has had superb knowledge of what is going on. In fact, the Bank of England used to run a few corporate