Comments on: The "invisible hand" of advanced country central banks in emerging markets http://www.ebrdblog.com/wordpress/2009/05/the-invisible-hand-of-advanced-country-central-banks-in-emerging-markets/ European Bank for Reconstruction and Development Fri, 11 Nov 2011 09:53:14 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: D. Mario Nuti http://www.ebrdblog.com/wordpress/2009/05/the-invisible-hand-of-advanced-country-central-banks-in-emerging-markets/comment-page-1/#comment-8 D. Mario Nuti Thu, 04 Jun 2009 10:35:34 +0000 http://www.ebrdblog.com/?p=422#comment-8 Your earlier post with Stefan Knobloch, on cross-border flows, was excellent and very worrying: $57bn outflow concentrated in half a dozen countries of Emerging Europe, and more in Q1 2009, can do a lot of damage. The "Invisible Hand" of the European Central Bank does nothing to reassure me. The ECB hand is invisible because it is not there. The ECB is notorious for not having the function of Lender of Last Resort, which rests with the national Central Banks for their national banks, leaving open the thorny and often unanswerable question of bank nationality. The ECB is often said to have functions of ELA - “Emergency Liquidity Assistance”, understood as lesser responsibilities than those of Lender of Last Resort – except that these are informal and discretionary, although the IMF uses LLR and ELA interchangeably. Anywat, quantitative easing does not seem to work well in the Eurozone, as banks are still reluctant to lend; why should liquidity trickle down into Emerging Europe. I have heard of trickling down before, but I have also come across trickling up. Quantitative easing by the ECB and national Central Banks in Europe is much more likely to spill-over into a commodity price boom than into Emerging Europe. (For a fuller discussion see http://dmarionuti.blogspot.com/2009/06/ebrd-and-foreign-banks-in-transition.html) Your earlier post with Stefan Knobloch, on cross-border flows, was excellent and very worrying: $57bn outflow concentrated in half a dozen countries of Emerging Europe, and more in Q1 2009, can do a lot of damage. The “Invisible Hand” of the European Central Bank does nothing to reassure me. The ECB hand is invisible because it is not there.

The ECB is notorious for not having the function of Lender of Last Resort, which rests with the national Central Banks for their national banks, leaving open the thorny and often unanswerable question of bank nationality. The ECB is often said to have functions of ELA – “Emergency Liquidity Assistance”, understood as lesser responsibilities than those of Lender of Last Resort – except that these are informal and discretionary, although the IMF uses LLR and ELA interchangeably.

Anywat, quantitative easing does not seem to work well in the Eurozone, as banks are still reluctant to lend; why should liquidity trickle down into Emerging Europe. I have heard of trickling down before, but I have also come across trickling up. Quantitative easing by the ECB and national Central Banks in Europe is much more likely to spill-over into a commodity price boom than into Emerging Europe. (For a fuller discussion see http://dmarionuti.blogspot.com/2009/06/ebrd-and-foreign-banks-in-transition.html)

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