Essay on "Role and Importance of the Bank for International Settlements in the World Economy"

Essay 10 pages (3026 words) Sources: 10 Style: MLA

[EXCERPT] . . . .

Bank for International Settlements

BIS Overview

The Bank for International Settlements (BIS) is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks.

The BIS fulfills this mandate by acting as:

forum to promote discussion and policy analysis among central banks and within the international financial community center for economic and monetary research prime counterparty for central banks in their financial transactions

Agent or trustee in connection with international financial operations

The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People's Republic of China and in Mexico City.

Established on 17 May 1930, the BIS is the world's oldest international financial organization.

As its customers are central banks and international organizations, the BIS does not accept deposits from, or provide financial services to, private individuals or corporate entities. (BIS n.d.)

History

The BIS was established in the context of the Young Plan (1930), which dealt with the issue of the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. Some historians too quickly credit Owen Young as the idea-man for the Bank for International Settlements. It was actually Hjalmar Schacht who first proposed the idea, which was then carried forward by the same group of international bankers who brought us the Dawes and Young Plans. (the August Review)

The new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payable as reparations. The Bank's name is derived from this original role. The BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general. (BIS, n.d.)

The BIS' place in the international financial world was greatly restricted by the Bretton Woods Conference 1944 and superseded by the International Monetary Fund. Its liaising role among central banks has since become its primary function. (Research Machines)

Changing Role of BIS

Since 1930, central bank cooperation at the BIS has taken place through the regular meetings in Basel of central bank Governors and experts from central banks and other agencies. In support of this cooperation, the Bank has developed its own research in financial and monetary economics and makes an important contribution to the collection, compilation and dissemination of economic and financial statistics. (BIS, n.d.)

Apart from fostering monetary policy cooperation, the BIS has always performed "traditional" banking functions for the central bank community (e.g. gold and foreign exchange transactions), as well as trustee and agency functions. The BIS was the agent for the European Payments Union, helping the European currencies restore convertibility after the Second World War. Similarly, the BIS has acted as the agent for various European exchange rate arrangements, including the European Monetary System which preceded the move to a single currency. (BIS, n.d.)

Finally, the BIS has also provided or organized emergency financing to support the international monetary system when needed. During the 1931-33 financial crisis, the BIS organized support credits for both the Austrian and German central banks. In the 1960s, the BIS arranged special support credits for the French franc (1968), and two so-called Group Arrangements (1966 and 1968) to support sterling. More recently, the BIS has provided finance in the context of IMF-led stabilization programs (e.g. For Mexico in 1982 and Brazil in 1998).

BIS Activities

Currently more than 5,000 senior executives and officials from central banks and supervisory agencies participate in meetings organized by the BIS every year. (BIS, n.d.)

The most important meetings held at the BIS are the regular meetings of Governors and senior officials of member central banks. Held every two months in Basel, these gatherings provide an opportunity for participants to discuss the world economy and financial markets, and to exchange views on topical issues of central bank interest or concern. The main result of these meetings is an improved understanding by participants of the developments, challenges and policies affecting various countries or markets. (BIS, n.d.)

Other meetings of senior central bank officials focus on the conduct of monetary policy, the surveillance of international financial markets and central bank governance issues. In addition, the BIS organizes frequent meetings of experts on monetary and financial stability issues as well as on more technical issues such as legal matters, reserve management, it systems, internal audit and technical cooperation. Though targeted mostly at central banks, BIS meetings sometimes involve senior officials and experts from other financial market authorities, the academic community and market participants. (BIS, n.d.)

The BIS offers a wide range of financial services to assist central banks and other official monetary institutions in the management of their foreign reserves. Some 140 customers, including various international financial institutions, currently make use of these services. BIS financial services are provided out of two linked trading rooms: one at its Basel head office and one at its office in Hong Kong SAR. (BIS, n.d.)

The BIS is a forum for discussion, policy analysis and information-sharing among central banks and within the international financial and supervisory community.

Monetary & financial stability

Promoting monetary and financial stability is one key objective of the BIS. Bimonthly meetings of the Governors and other senior officials of the BIS member central banks to discuss monetary and financial matters are instrumental in pursuing this goal. The standing committees located at the BIS support central banks, and authorities in charge of financial stability more generally, by providing background analysis and policy recommendations. (BIS)

Banking services for central banks

The BIS offers a wide range of financial services specifically designed to assist central banks and other official monetary institutions in the management of their foreign exchange reserves. Some 140 customers, including various international financial institutions, currently make use of these services.

On average, over the last few years, some 6% of global foreign exchange reserves have been invested by central banks with the BIS and as of 31 March 2008, total currency deposits amounted to SDR 236 billion. BIS financial services are provided out of the two linked trading rooms at its Basel head office and in Hong Kong SAR. (BIS)

The Bank continually adapts its product range in order to respond more effectively to the evolving needs of central banks. Besides standard services such as sight/notice accounts and fixed-term deposits, the Bank has developed a range of more sophisticated financial products which central banks can actively trade with the BIS to increase the return on their foreign assets. The Bank also transacts foreign exchange and gold on behalf of its customers.

In addition, the BIS offers a range of asset management services in sovereign securities or high-grade assets. These may be either a specific portfolio mandate negotiated between the BIS and a central bank or an open-end fund structure -- the BIS Investment Pool (BISIP) -- allowing customers to invest in a common pool of assets. The two Asian Bond Funds (ABF1 and ABF2) are administered by the BIS under the BISIP umbrella: ABF1 is managed by the BIS and ABF2 by a group of external fund managers. (BIS)

The BIS extends short-term credits to central banks, usually on a collateralized basis. From time to time, the BIS also coordinates emergency short-term lending to countries in financial crisis. In these circumstances, the BIS advances funds on behalf of, and with the backing and guarantee of, a group of supporting central banks.

Research at BIS

The BIS carries out research and analysis to contribute to the understanding of issues of core interest to the central bank community, to assist the organization of meetings of Governors and other central bank officials and to provide analytical support to the activities of the various Basel-based committees. (BIS)

The BIS also comments on global economic and financial developments and identifies issues that are of common interest to central banks.

Its Role in the World Economy

It was the first of the semi-public international banks. Over the years its functions have changed and, largely since the late 1970s, it has served as the focal point for the world's central banks and financial regulators to pool their thinking and deal with international financial issues. (Carl Felsenfeld)

Problems in world banking have sensitized observers to the absence of coordinated regulation and to the need for some form of unified control. That there is a need for one international bank regulator is increasingly acknowledged. BIS in Basel comes closer than any other organization to fulfilling this function. The International Monetary Fund comes close but is too politicized and has been too involved in attempting to meet a continuing series of crises to do any long-range thinking. Only BIS has attracted the intellectual resources to analyze and resolve international problems in a thoughtful and deliberate manner. And only the BIS output is being adopted in the world's banking centers.

The life of BIS and its related companies can be divided into… READ MORE

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