ewald nowotny : a changing role for central banks opening remarks by prof dr ewald nowotny, governor of the central bank of the republic of austria, at the 41st economics conference of the central bank of the republic of austria, vienna, 10 june 2013. * * * ladies and gentlemen, i would like to welcome all of you to the 41st economics conference of the oesterreichische nationalbank here in vienna. my warmest regards to state secretary of finance andreas schieder, and our keynote speakers, benoit coeure, member of the ecb executive board, and harold james, professor at princeton university. i am delighted and honored to welcome very prestigious speakers among us, who will enrich this conference with their insightful ideas and novel research. “ a changing role for central banks? ” is the question addressed at this year ’ s conference. during the 19th century central banks were very closely interlinked with national governments. only in the late 20th century did we observe a shift in emphasis toward the institutional autonomy of central banks. one can safely say that the status, reputation and self - image of central banks have considerably improved over the years. today, central banks alongside parliaments, governments and judiciary are among the pillars of modern democratic nations. at our conference we will discuss what kind of a pillar of the democratic system a central bank is or should be. in my short introduction, i want to emphasize two interconnected issues that are relevant to this discussion : 1 ) the role of a central bank in the general context of economic policy, and 2 ) the concept of central bank independence. in the period after the great depression of the 1930s and in the first decades after world war ii, the mandate of central banks usually reflected the traumatic experiences both of high inflation and mass unemployment. this is e. g. reflected in the broader mandate of the u. s. fed and also applied to the mandate of austria ’ s central bank before austria joined emu. in the period following the oil price shocks and up to the “ great recession ” – the economic crisis we have been experiencing for five years now – the role of central banks seemed to be clear cut : central banks should focus on price stability, should operate mainly with one instrument – the policy rate – and should be independent in their actions. this was also the leading perspective when laying the foundation of the european central bank – the maastricht treaty in 1992. it reflected a strong position of economic theories

the bretton woods institutions should be reflected in a declining trend of the overall number of fund - supported programs over time. there are legitimate cases which require access to fund resources. however, the fund ’ s financing role should and can only be catalytic, given its limited resources. while policies, such as the exceptional access framework, are in place to safeguard fund resources, they are often not adhered to. i am also concerned about the prolonged use of fund resources which is out of line with its mandate. countries that run imf - supported programs over many years or decades are probably not a demonstration of success. thus, the imf should strive to prevent that countries become dependent on imf financing. during the debt crises of the early 1980s, the imf acted more as a crisis manager or the official agent in charge of concerted bank lending. this role has shifted over the years, with the fund now practically resolving countries ’ financial crises on its own. an important initiative to reposition the fund once again as a crisis manager came to be known as the private sector involvement ( psi ) initiative. psi encapsulates the official sector ’ s attempt to engage the private sector in crisis resolution more effectively. the private sector has to assume responsibility for its investment decisions. this is grounded in my firm conviction that a collectivization of private sector losses would distort the allocative efficiency of capital markets and would lead to moral hazard via increased risk - taking. another important initiative, which the imf started to discuss in late 2001, proposed to establish an international bankruptcy procedure for unsustainable sovereign debt ( sdrm ). i believe that this mechanism would have made the psi initiative more operational. however, the time may not have been ripe yet for such a comprehensive framework for the restructuring of sovereign debt. nevertheless, public and academic awareness has been raised. the debate has helped in that many emcs have introduced collective action clauses ( cacs ) in their sovereign bond contracts and major emcs and the private sector are discussing a code of conduct. this notwithstanding, i am firmly convinced that we need an international arrangement which would facilitate the orderly resolution of sovereign debt crises. such an arrangement would also help shift the function of the imf from its current role as crisis solver to crisis manager. 5. economies in transition, developing countries and poverty reduction in addition to finding more effective mechanisms for crisis prevention and management, the international community faces another major challenge, the eradication of poverty. one