Posted February 16, 2018 07:24:17 What’s the role of the Federal Reserve in a global financial crisis?
What are the implications for Australia’s financial system and its economy?
Key points:A number of economists and politicians have called for the Federal Government to review its central bank role in the crisisThe Australian Government has said it has received advice about the role the Federal Bank plays in the financial crisisThe Federal Reserve’s Governor is currently investigating a possible role for the central bankIn the midst of the global financial system crisis, a number of economic experts and politicians are calling for the Australian Government to revisit its role in managing the global economy.
In recent months, several senior economists have called on the Federal government to look at the role that the Federal Central Bank plays, following the resignation of the former Reserve Bank Governor, Alan Joyce.
The Federal Government has previously refused to acknowledge the role played by the central banks in the global economic crisis, saying it had been an “overriding force” in the world economy.
But in the wake of the financial system’s collapse, the Federal Bureau of Statistics said the Federal reserve was responsible for the global recession.
And some economists say the Federal central bank could be at risk of having to step in again if the global crisis was to return.
The Australian Federal Reserve has been asked by the Government to consider the role it played in the collapse of the world financial system in 2015.
Federal Reserve Governor Andrew Haldane is investigating whether the Federal Federal Reserve could be required to take another step in the US economy after the collapse in the value of the dollar.
Mr Haldanes inquiry has heard concerns that the collapse could cause the value and liquidity of the US dollar to rise as investors seek alternative financial assets.
“There’s an element of uncertainty around the implications of a large and growing global financial and commodity downturn,” Mr Haldans inquiry heard.
“It’s a bit like we were looking at the end of a war but we didn’t know if it was going to end in a very big way.”
He has also heard the role should be scrutinised if Australia was to lose access to international capital markets.
In his inquiry, the former governor said the United States’ Federal Reserve system was a key player in global financial markets, and had a “very important role in stabilising global financial stability”.
He said it was also an important player in providing liquidity for global financial assets and the US Treasury.
“The Fed has a central role in determining the value, quality and quantity of liquidity that’s available in the international financial markets,” Mr Justice Haldan said.
“If it were to lose that role it would have a serious impact on the global stability of the international capital market.”
Federal Reserve governor Andrew Halde says the role and the extent of the role in global markets were not clear in 2015 (ABC News: David Crosling)The Federal Treasury has also warned that a global recession could trigger a “new wave of economic turbulence”.
The Reserve Bank of Australia (RBA) also warned in 2015 that the global collapse could result in a new wave of financial instability.
But it has also told the inquiry that the role is not clear.
“A global recession would have an adverse effect on the value-added of global financial services, financial institutions and economies,” Mr RBA chief economist Michael Phillips told the hearing.
“I’m not going to speculate on what might happen if that happened.”
But a Federal Reserve spokesman said the bank had been approached about the topic by other relevant authorities, including the US Government.
“We have received a briefing on this matter and will be reviewing the implications,” the spokesman said.
What you need to know about the global banking crisis: