Monetary History, Exchange Rates and Financial Markets

Monetary History, Exchange Rates and Financial Markets

Essays in Honour of Charles Goodhart, Volume Two

Edited by Paul Mizen

Monetary History, Exchange Rates and Financial Markets is an impressive collection of original papers in honour of Charles Goodhart’s outstanding contribution to monetary economics and policy. Charles Goodhart has written extensively on many of these topics and has become synonymous with his field; the chapters within this book offer a summary of current thinking on his own research subjects and include perspectives on controversies surrounding them.

Chapter 10: Working with market forces

Michael Foot

Subjects: economics and finance, economic psychology, money and banking


Michael Foot1 1. INTRODUCTION I have much for which to be grateful to Charles. Our careers in the Bank of England overlapped by many years, our interests often required close collaboration and for two years I had the pleasure of working directly for him. The biggest single impact this had for me was to strengthen an already deeply held but poorly articulated view of the importance of working with markets rather than against them. Not surprisingly, therefore, when I was asked to take part in this conference (and being in my eighth year as a financial regulator, which equals 20 years in many other professions) I immediately thought of drawing on Charles’s extensive work on financial regulation.2 More specifically, I decided to pick up and try to take forward from my perspective some of his work on how the regulator might work with market forces. This has been given added impetus by the fact that the Financial Services Authority took this subject as one of its themes for detailed analysis in 2001. What follows is an early and personal contribution to that sizeable task. I should make clear from the outset that the FSA’s work and my own interests stretch across the regulation of all financial services and to both prudential and conduct of business aspects. Charles, in contrast, has always been particularly concerned with the prudential aspects of bank regulation.3 For the purpose of this chapter, I too will focus on bank prudential regulation but would just make...

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