I was recently reading the book “Princes of the Yen” which contained the interesting concept of central bank “window guidance” where the bank sets targets for banks to lend for each industry. In Japan this led to very rapid growth after the Second World War and shows that centralised policies can be more effective than the free market in some situations. It also shows that equity or bond financing is not needed for success and bank lending can do equally as well. This made me think about central banks in a completely different way with the rate of interest being less important than the quantity of money being lent and the fact that credit can be targeted to either productive industries or to speculative activities. This is a link to the author Professor Werner’s publications if you would like to learn more.
– Richard Emberton, FT MBA 2012