Andrew Hauser: Building on strong foundations - why central banks bank for each other

Remarks by Mr Andrew Hauser, Executive Director for Banking, Payments and Financial Resilience of the Bank of England, at the Federal Reserve Bank of New York's Commemoration of the 100th Anniversary of the Federal Reserve System's U.S. Dollar Account Services to the Global Official Sector, New York City, 20 December 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

1917 was not a quiet year.

In April, the United States joined World War 1. In July, the British royal family changed its name from 'Saxe-Coburg and Gotha' to 'Windsor'. And in Russia, the October Revolution ushered in the most momentous political change of the twentieth century.

Against that backdrop, the agreement by the Bank of England and the New York Federal Reserve in Spring 1917 to provide banking services to one another was never going to leave the same historical footprint.

But that superficially unremarkable act was actually part of a seminal moment in the development of the international financial system. Those correspondent relationships between central banks, forged at a time of war but replicated widely in the years ahead, would achieve three key things:

1. They gave central banks safe, confidential and reliable access to overseas reserve currencies, assets and payments, and intelligence on the operation of those markets - and in so doing:

2. They helped underpin the international monetary framework (which in that era meant closely-managed exchange rates, with or without the gold standard); and

3. They provided channels through which funds could continue to flow in conditions of financial emergency.