From 1945 to early 1970, the intervention framework of monetary policy was largely determined by the rules established in the famous conference of Bretton Woods in 1944. Each country committed to maintain a fixed parity between its currency and the U.S. Dollar, the latter engaging in the same time ensuring the convertibility into gold.

However, the excessive growth of monetary base in dollars generated by policies increasingly expansive related to public expenditure - the Vietnam War in particular - have shattered this stability. This resulted in an inconvertible dollar, inflation rampant and finally a general floating currencies. Hence the collapse of Bretton Woods in the mid 70s.

But the government did

All central banks have, in effect, the objective of nominal stability for achieving this is the condition of preservation of purchasing power to those who are keepers.

The central banks then used the main instrument available to them, the interest rates that set the terms of the interbank money market. By their actions, they set and price conditions and optimal allocation of bank liquidity.

Moreover, in modern economies characterized by the increasing importance of capital markets, direct influence is exerted primarily on interest rates in the short term. However, investment decisions or expense of economic agents are often determined by the rate of long-term interests (including real estate purchases). The potential influence of central banks in this area are much more limited and restrictive, at least if they remain in a treaty. 

The seriousness of the current economic situation, characterized by difficulties refinancing commercial banks between them (uncertainty about the strength of their balance sheets burdened by their debts and doubtful loans) led them to turn to the Central Bank. The latter, traditionally a lender of last resort, has become by force of circumstances a buyer of last resort of a range of more and broader private sector claims.

However, we have already shown that there are close relations between the development of bank credit and asset prices even as fears about inflation (the main objective of monetary policies of central banks) are minimized.

The strong movement of disinflation that began in the mid-1980s and which characterizes most major western economies seems to continue, the strong increase due to raw materials from 2004 to July 2007 is explained primarily by the acceleration of China's economic growth reinforced by a speculative movement of large magnitude.

Worse, the reversal of commodity prices due to the recession in most economies of the planet has contributed to the acceleration of this disinflation and could lead to deflation (falling prices of industrial decline production and rising unemployment).

The central banks must set new goals and develop new instruments to ensure greater stability in the financial system. The crisis has shown that they can no longer confine their role to stimulate growth through to lower their interest rates and their response to refinance massive savings through the purchase of receivables from the private sector. The Central Banks must therefore adopt a macro prudential monetary policy to take into account the systemic risk that arose with the banking crisis.

Moreover, it appears increasingly clear that the excesses of development funds at risk (securitization of financial products complex, opaque and uncontrolled by the supervisory agencies) and financial leverage are largely responsible for the deteriorating quality of bank balance sheets and solvency.

The only handling of interest rates, including through non-conventional operations on the long end of the curve (redemption of government securities) is insufficient, although necessary in the short term. It is important to provide a stable medium-term financial system nationally and especially internationally by adopting new rules to avoid a pro cyclical conditions for granting credit and the repetitive appearance of bubbles in financial markets of assets.

The introduction by the banks, stores dynamic binding, as the resumption of the credit cycle, should be harmonized with international supervisory bodies under the control of the Central Bank. In particular in the framework of financing highly leveraged. These structures, in fact, are not currently part of the perimeter monitoring bodies supervising commercial banks (SIVs, conduits and hedge funds).