Resilience and Reform: The Evolving Role of Central Banks in Turbulent Times

In a world marked by growing economic shocks and heightened geopolitical risk, central banks are being tested on their ability to uphold stability and public trust. Speaking at a conference in Kyiv, the Governor of the Bank of England reflected on the challenges central banks face, particularly in nations confronting severe adversity, and outlined the lessons learned from history and the adaptation required to maintain relevance and effectiveness.

Central bank independence was underscored as foundational to modern monetary policy, yet this autonomy comes with accountability to both legislation and the public whose economic wellbeing they serve. The core objectives of monetary and financial stability must not only be defined in legal terms, but must withstand severe, unpredictable shocks—whether economic, political, or even military. Recent years have demonstrated that having a credible inflation target, alongside institutional independence, provides a vital anchor for price stability and resilience, even in the face of external shocks. Importantly, the adaptability of these frameworks, based on transparency and accountability, has strengthened their credibility.

The Governor highlighted the interdependence of monetary and financial stability, emphasizing that neither function can succeed in isolation. He drew a clear distinction between the money system—comprising commercial bank deposits and central bank reserves, whose nominal value and “singleness” must be preserved—and the broader world of investment managed by non-bank financial institutions (NBFIs), which inherently involves risk and lacks nominal value assurance. Growing linkages between banks and NBFIs pose potential risks, especially if ambiguity arises over what is—or is not—inside the “money system.” This means regulatory vigilance is crucial to ensure stability as financial systems evolve.

Turning to innovations in money, the Governor cautioned about the risks of unbacked cryptocurrencies, which fail to maintain the value consistency required of money, while acknowledging the potential of properly regulated stablecoins and digital payment technologies to enhance efficiency. He argued, however, that the priority should be harnessing these technological advances within the existing commercial bank framework, rather than creating entirely new forms such as central bank digital currencies—unless absolutely necessary.

Ultimately, this reflection offers a timely reminder: in the face of unprecedented shocks, central banks must uphold both the nominal and real value of money, guard against systemic risks from evolving financial structures, and continuously adapt to technological change—all while remaining accountable to the societies they serve. The ability of monetary frameworks to weather storms is proving more vital than ever as central banks navigate the complexities of a fragmented global landscape.