Bank of International Settlements Switzerland and More
The resources of the world have forever changed with the advent of the computer and the world wide web. The world is now truly global. On a daily basis, I see visitors from around the world reading my hubs and sometimes even commenting on my hubs. What was once considered a world away is now literally at my fingertips. Commerce is now global too and while banking has been global for decades, the understanding of the effects of this new global shopping market have been keenly ignored by the American populace. Even worse, Americans have a limited understanding of the financial implications of global banking. There is one global bank that we as Americans and citizens of the world, we must know about and understand. Whether you are managing your family finances, your personal business or just staying abreast of world events, taking a macroeconomic view of the global banking system is something a good citizen would take the time to understand.
Learn about the most influential bank in the world - the Bank of International Settlements. Learn about their function, where they are located and why and how their operations and policies can affect each of us in our daily lives.
Bank of International Settlements
The Bank for International Settlements (BIS) is an intergovernmental organization of central banks which:
"fosters international monetary and financial cooperation and serves as a bank for central banks."
The bank of international settlements is independent - it is not accountable to any national government.
The BIS provides banking services to central banks. The "central banks" are international organizations.
The BIS is based in Basel, Switzerland.
The BIS was first established by the Hague agreements of 1930.
Throughout the world, the name of the organization may change - for instance - the name of the BIS in German: Bank für Internationalen Zahlungsausgleich (BIZ), in French: Banque des Règlements Internationaux (BRI), in Italian: Banca dei Regolamenti Internazionali (BRI).
Map of Switzerland
Financial Regulations - Bank's Goals
A "well-designed financial safety net, supported by strong prudential regulation and supervision, effective laws that are enforced, and sound accounting and disclosure regimes," are among the Bank's goals.
"A stable currency is a stable economy."
Purpose of the Bank of International Settlements - Monetary Policy
The goals of the BIS is to make monetary policy more predictable and transparent among its 57 member central banks.
Keep in mind that currently, monetary policy is determined by each sovereign nation.
However, the policy of each nation is subject to much scrutiny.
The scrutiny has never been greater than now with the advent of greater global interaction and export.
As we speak the Chinese are concerned IF the value of the dollar declines, if the standard of living in China rises and the US purchases less products from China, what will become the economic fate of China?
Foreign exchange rates, the fate of export economies affects each and every one of us - both with our interest rates and our with our employment.
A stable currency is a stable economy.
The Bank of International Settlements is a key player in the global economy.
The Corbett Reports - Economics 101 - Bank of International Settlements
Extraterritoriality is the state of being exempt from the jurisdiction of local law, usually as the result of diplomatic negotiations.
Extraterritoriality is often associated with physical places. Examples of physical extraterritorial states are military bases of foreign countries, or offices of the United Nations.
Ships in foreign waters are another example.
Extraterritoriality extends to diplomatic agents such as foreign heads of state, and the "persons and belongings" of foreign heads of state.
Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimal capital requirements for banks.
Basel I for the first time, established a global standard for capitalization - 8%.
In 2004, they passed Basel II, which kept the 8% collateral bench mark but developed a "mark to the market" standard so that the valuation would reflect the true value of the collateral. The standard of excellence remained at 8%, yet it means a change when the value of the currency changes.
Mark-to-Market = Fair Value Accounting
Mark-to-market or fair value accounting refers to accounting for the fair value of an asset or liability based on the current market price of the asset or liability.
Fractional Reserve Banking
The portion (expressed as a percent) of depositors' balances banks must
have on hand as cash. This is a requirement determined by the country's
central bank, which in the U.S. is the Federal Reserve. The reserve
ratio affects the money supply in a country.
This is also referred to as the "cash reserve ratio" (CRR).
Read more: answers.com
Monetary - Credit Policy - Overview
BIS - 57 banks
Federal Reserve - 12 banks
Bank of England 1694 started this process of setting monetary policy. In the last 30 years, the character of the BIS has been refined. Bank capital, valuation - huge impact upon global economics. 2004 initiated regulations that impacted global economics. Basel I set an 8% foundation for capital. Basel II changed the calculation of the 8% - the collateral was changed to mark-to-market.
Properties and Operation of the Bank of International Settlements
Stock of the BIS is held by private banks. BIS is essentially replicating what the Bank of England instituted in 1694, to exert national control over the financial system and the United States Federal Reserve Act here in 1913.
What does the BIS decide? It determines collateral. Remember, bank collateral is how the bank is funded and valued. The BIS regulations set the foundation for the values throughout the world. This little known bank to the common person has a major impact upon global economics.
The 57 nations represented by the BIS are essentially are a representation of the world economy.
BIS is exempt from Swiss law. It is akin to an extraterritorial entity within Switzerland.
In 1988 (aka Basel I) and in 2004 (Basel II), the BIS initiated a policy and regulation that had significant impact upon global economics.
The change in 2004 of "mark-to-market" is especially significant when real estate prices change dramatically.
In 2007, when housing prices started to fall, the true impact of the mark-to-market showcased the many downfalls in our economics.
We must always be cognizant that the power of the BIS is global.
To put it in perspective, if we view the Federal Reserve here in the United States and understand its functions, then we translate this view globally - this is the power of the BIS.
Parts of BIS's operations are transparent and yet the meeting in Australia was secret.
The meetings of the BIS are often stated to be held in secrecy. Why? Because the BIS is a market mover. They can change the world economics.
There is no external audit of the BIS.
The fundamental principles of the BIS are sound. The only question that arises is the amount of power and the balance of power.
A key to economics as we have discussed is supply and demand. Understanding the forces that affect economics is important from both a micro and a macro standpoint.
A sound and stable currency and consistent policy standards and benchmarks is what makes both a national and global economy work.
Is the BIS needed? Most certainly. Is the power of the BIS a concern - most certainly. Just as we did not see the mammoth financial giants emerging, we must be on guard and take notice for significant monetary policy changes made by Federal Reserve or the BIS.
Currency is not a thread of the economy - currency is the foundation to all economies. War and absolute power can affect the value of currency.
John F. Kennedy's Inaugeral Address
"The world is very different now. For man holds in his mortal hands the power to abolish all forms of human poverty and all forms of human life. And yet the same revolutionary beliefs for which our forebears fought are still at issue around the globe—the belief that the rights of man come not from the generosity of the state but from the hand of God."
Read more: answers.com
Absolute Power Origins of Meaning
To keep the power of war and economics in perspective, it is helpful to review a little bit of history. Where did the term "absolute power" stem from? What was the origin of this term? This term arose as a quotation by John Emerich Edward Dalberg Acton, first Baron Acton (1834–1902). The historian and moralist, who was otherwise known simply as Lord Acton, expressed this opinion in a letter to Bishop Mandell Creighton in 1887:
"Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."
Another English politician with no shortage of names - William Pitt, the Elder, The Earl of Chatham and British Prime Minister from 1766 to 1778, is sometimes wrongly attributed as the source. He did say something similar, in a speech to the UK House of Lords in 1770:
"Unlimited power is apt to corrupt the minds of those who possess it"
History of Bank of International Settlements
Test Your Knowledge
Did you know Charlie Chaplin was exiled from the United States?
Did you know about the functions of the Bank of International Settlement Before Reading this Hub?
Moral of the Story - What We Must Remember
Just as the location of the BIS is within 2.5 hours drive from the resting place of Charlie Chaplin, a scant 140 miles apart, so too the story of the exile of Charlie Chaplin and the possibility of absolute power corrupting absolutely is a real concern.
Changes in monetary policy MUST be closely monitored. To have fast and furious changes is always ill advised. The fear of economic hardship strikes to the core of every family - both here in America and across the globe. Fighting for freedom is not just supporting our troops, fighting for freedom also means understanding global economics and the true value of currency. Take the time to learn about global finance. Understand supply and demand. Learn the real meaning ofand be an informed citizen of the world. stagflation