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Central banks as 'pawnbrokers'

A lot of effort goes into sustaining what Mervyn King calls the "alchemy" of modern monetary and banking systems in his latest book

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Book Review

Suyash Rai 

THE END OF ALCHEMY
Money, Banking, and the Future of the Global Economy
Mervyn King
W W Norton
368 pages; $28.95

Running or regulating a bank is not for the faint hearted. Banks raise most of their resources as deposits and borrowings, which can be called back immediately or at short notice. A majority of these resources (about 65 per cent for banks in India) are used to give loans that cannot be readily converted into cash. The rest is invested in securities whose convertibility into cash depends on the moment in time. In 2008, at the onset of global financial crisis, even Indian markets froze. No wonder the great financial economist Merton Miller called banking a disaster-prone 19th century technology.

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First Published: Tue, July 05 2016. 21:40 IST
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