Do Central Banks Have an Exit Strategy?
A year into the global financial crisis, several key central banks are still extraordinarily exposed to their countries’ shaky private financial sectors. Above all, they should start fostering consolidation, allowing weak banks to fail or merge, rather than indiscriminately extending credit and stoking inflation, which hits the poor hardest.
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SINGAPORE – A year into the global financial crisis, several key central banks remain extraordinarily exposed to their countries’ shaky private financial sectors. So far, the strategy of maintaining banking systems on feeding tubes of taxpayer-guaranteed short-term credit has made sense. But eventually central banks must pull the plug. Otherwise they will end up in intensive care themselves as credit losses overwhelm their balance sheets.