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Banking, monetary policy and sustainable development

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 Richard Warner
Wednesday, May 4 at 4 PM – 5:30 PM
Alison Richard Building, Room S2

Washington Consensus development policies have been widely argued to suppress rather than support economic development. This lecture will focus on how they misunderstand the role of the banking sector and monetary policy in ensuring stable, sustainable and equitable economic growth without financial crises. Interestingly, this is an area that has been been neglected to an extent also in traditional development economics, even though much attention was given to banking and monetary policies by successful industrialising countries. Problems such as these can be analysed with reference to the Quantity Theory of Credit, which argues that bank credit creation for GDP transactions determines nominal GDP growth, while bank credit for non-GDP transactions causes asset price boom-bust cycles and banking crises.

Richard Warner’s Bio

Professor Richard Werner, D.Phil. (Oxon) obtained his first degree in economics from the London School of Economics with first class honours. His doctoral degree, on monetary economics and economic policy, was awarded by the University of Oxford. Richard has been at the University of Southampton since 2004, first as Reader and since 2005 as Professor and Chair in International Banking. He is a member of the ECB Shadow Council, and the founding chairman of Local First Community Interest Company, which introduces not-for-profit community banks in the UK, and Convenor of the Association for Research on Banking and the Economy (ARBE). Richard has gained extensive experience in the private sector, among others as researcher, economist, strategist, fund manager and entrepreneur (including as chief economist at Jardine Fleming Securities (Asia) Ltd., foreign scholar at the Ministry of Finance Japan, visiting researcher at the Bank of Japan, first Shimomura Fellow at the Development Bank of Japan, senior consultant at the Asian Development Bank, senior managing director and senior portfolio manager at Bear Stearns Asset Management). He has also been a member of several corporate boards, including the asset allocation board of the TelWel (US$5.6bn) pension fund, the executive board of the Southampton Management School and the supervisory board of several major companies, where he has also served as chairman of the audit committee.

In 1995, Professor Werner proposed a new monetary policy to expand bank credit for the real economy, which he called ‘quantitative easing’. His book ‘Princes of the Yen’ (2003) became a no. 1 bestseller in Japan, beating Harry Potter for six weeks. In the English version Richard warned that the ECB was likely to create credit booms, asset bubbles, banking crises and recessions in the eurozone (a documentary movie about the book was launched in 2014). His 2005 book ‘New Paradigm in Macroeconomics’ (Palgrave Macmillan) warned of the recurring banking crises following asset bubbles and suggested workable solutions. Since the crisis, his approach to disaggregate bank credit and focus on bank credit for the real economy to model nominal GDP growth has found supporters among a number of central banks. His co-authored book Where Does Money Come from? has attracted much attention and citations, including by the Bank of England. In 2014, Richard published the first empirical test of the various theories of banking, demonstrating that banks do not lend money, but instead newly create credit and money.

CAMSED Seminar Series on the Global Political Economy of Development

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The Challenges of Industrialization in the 21st century

Monday 22st of February:
17:00-18:30hrs, Mill Lane Lecture Theatres, Room 7

Dr. Ha-Joon Chang, University of Cambridge
‘Industrialisation: Lessons from History and Contemporary Challenges’

Andrés Arauz, Minister of Knowledge and Human Talent of Ecuador
‘Industrial and Knowledge Policy in Ecuador: Achievements and Challenges’

The Cambridge Society for Social and Economic Development (CAMSED) cordially invites you to the inaugural event of its Global Political Economy of Development Seminar Series. We look forward to a lively exchange about the challenges of industrialization in the 21st century.
On this occasion, the discussion will center on the case of Ecuador. In the midst of hegemonic liberal economic paradigms that reduce policy space for developing nations, Ecuador has attempted to implement industrial and knowledge policies with a creative toolkit. While pursuing heterodox and investment macroeconomic policies, Ecuador must simultaneously face a hard restriction with de jure dollarization. At the same time that it has been an active promoter of new South American regionalism, it must pragmatically face trade issues with multilateral organizations and hegemonic powers. In the realm of industrial policy, it has been more successful in systemic competitiveness than in specific sectors, precisely because of the inconvenient trade regime in which it must operate. This led Ecuador to push the limits of the industrial policy toolkit with unconventional measures such as frequent use of balance of payments safeguards, alternative uses of technical standards and regulations, aggressive use of accreditation and certification and pro-development macroprudential financial regulations. Finally, in order to promote its long run competitiveness, Ecuador has heavily invested in the knowledge and human talent of its population throughout its lifecycle. While successful in significantly increasing the ‘supply of knowledge’, it is imperative to achieve an equivalent transformation in its industrial sectors, for otherwise a massive brain drain is likely in the near future.