Excerpt from Chapter One Why Central Banks Are Failing Central banks are failing because their ability to perform these primary tasks is in decline. The question then is what are the causes of that decline? What developments and forces in the global economy are disrupting central banks efforts to carry out their primary tasks? The following is a brief introductory overview of the key problems and fundamental contradictions with which central banks today are confronted. a. Globalization and integration rendering central bank targets & tools ineffective First, there's the problem of the rapid globalization and integration of financial institutions and markets that emerged in the 1970s and 1980s which has grown ever since. Central banks are basically national economic institutions. The global financial system is beyond their mandate. Not only that, there is no single central bank capable of bailing out the global banking system during the next inevitable global financial crash. In 2008 it didn't even happen.

The US Federal Reserve and the Bank of England bailed out their respective banking systems, providing more than $10 trillion in direct liquidity injections, loans, guarantees, tax reductions and direct subsidies. The Federal Reserve even provided a loan in the form of a currency swap of $1 trillion to the European Central Bank and its affiliated national central banks. But the Euro banking system has not been effectively bailed out to this day. Nor has Japan's. Together both have the equivalent of trillions of dollars in non-performing bank loans. While China's banks and central bank, the Peoples Bank of China, was not involved in the 2008 banking crash and subsequent bailout, it almost certainly will be involved in the next financial crisis. In fact, China's financial system may be at the center of it. The fact that the financial-banking system today is highly integrated and globalized raises another problem for central banks.

With today's banking system composed not only of traditional commercial banks, but of shadow banks, hybrid shadow-commercial banks, non-bank companies engaging increasingly in financial investing, and financial institutions in various new forms serving capital markets in general, no national central bank's operational tools or policies can control the global money supply or ensure stability in goods and services prices. The global 21st century financial system is also well beyond the reach of central bank supervision.