Central Bankers are like McGyver

Central Bankers are like McGyver

Outline

Outline

Outcome

Outcome

Outcome

Outcome

Outcome

• Emerge ad-hoc in December 2007, as reiteration of previous facilities
• Reciprocal currency swap arrangements between Central Banks, negotiated rates
• Solve Eurocurrency international lender of last resort problem
• Backstop to off-shore dollar markets

Literature

• Structure/Functionalists:
  • Mehrling (2015), Murau (2018), Kuttner (2018)
  • Braun (2018), Braun/Gabor (2019): Infrastructural Entanglement
• Agency, state-centered:
  • Hardie/Maxfield (2016), currency statecraft, loss of autonomy
  • Sahasrabuddhe (2019), McDowell (2012, 2017), currency statecraft towards EME
  • Schwartz (2019), Strengthening Dollar Hegemony, Dependence

Argument: Bricolage

Argument: Bricolage

The C6 swap line network emerges through design by bricolage

Argument: Bricolage

Bricolage: dialectic interplay of agency and structure

• available means are time-dependent, structurally determined:
  • they are “the contingent result of all the occasions there have been to renew or enrich the stock or to maintain it with the remains of previous constructions or destructions” (Lévi-Strauss 1966, 17)
• bricoleur transforms the structural constraint (agency)
  • by “build[ing] up structures by fitting together events, or rather remains of events” (Lévi-Strauss 1966, 22)

Argument: Bricolage

Argument: Bricolage

Argument: Bricolage

Methods

• Qualitative Process Tracing
• Analysis of
  • FOMC meeting minutes from 2007 to 2013
  • Elite-Interviews with 12 central bankers, market participants, monetary policy experts
• Hypothetico-deductive model $\rightarrow$ Bricolage, theoretical triangulation (Kay and Baker 2015, 4)

Analysis

Analysis

The C6 swap line network emerges through design by bricolage

Analysis

Structure $\rightarrow$ Agency

structural disposition of Eurodollar markets generates specific agents and technologies

“the crisis has dramatized the remarkable extent to which financial markets have become globally integrated” (Nathan Sheets in FOMC 2009, 15)

Analysis

Structure $\rightarrow$ Agency

structural disposition of Eurodollar markets generates specific agents and technologies

“the crisis has dramatized the remarkable extent to which financial markets have become globally integrated” (Nathan Sheets in FOMC 2009, 15)

$\hookrightarrow$ structure produces opposing agencies but only one viable technology; cannot explain timing

Analysis

Structure $\leftarrow$ Agency

Objective of permanent swap lines:

“reduce uncertainty among market participants as to whether and when these arrangements would be renewed” (FOMC 2013, 9)

“as the deadline grew closer, the markets would start to worry about whether the swap-line was going to be there or not” (Sheets in FOMC 2010b, 16)

Analysis

Structure $\leftarrow$ Agency

Objective of permanent swap lines:

“reduce uncertainty among market participants as to whether and when these arrangements would be renewed” (FOMC 2013, 9)

“as the deadline grew closer, the markets would start to worry about whether the swap-line was going to be there or not” (Sheets in FOMC 2010b, 16)

$\hookrightarrow$ management of expectations

Analysis

Structure $\leftarrow$ Agency

Objective of permanent swap lines:

“reduce uncertainty among market participants as to whether and when these arrangements would be renewed” (FOMC 2013, 9)

“as the deadline grew closer, the markets would start to worry about whether the swap-line was going to be there or not” (Sheets in FOMC 2010b, 16)

$\hookrightarrow$ management of expectations

President Kocherlakota:

renewal of a temporal line could be understood as the Fed being “concerned about things”, while with a permanent facility the FOMC “[doesn’t] really have to worry as much about the signaling content of our decision” (FOMC 2013, 12).

Analysis

Structure $\leftarrow$ Agency

Objective of permanent swap lines:

“reduce uncertainty among market participants as to whether and when these arrangements would be renewed” (FOMC 2013, 9)

“as the deadline grew closer, the markets would start to worry about whether the swap-line was going to be there or not” (Sheets in FOMC 2010b, 16)

$\hookrightarrow$ management of expectations

President Kocherlakota:

renewal of a temporal line could be understood as the Fed being “concerned about things”, while with a permanent facility the FOMC “[doesn’t] really have to worry as much about the signaling content of our decision” (FOMC 2013, 12).

$\hookrightarrow$ Permanent facility once market expectations converge

Analysis

Means vs Ends: Practices of Bricolage

• Experimentation

„I think it will send a good signal […] But I don‘t know for sure. If we do it, we are just going to give it a try and see what happens“ (FOMC 2007, 14)

Analysis

Means vs Ends: Practices of Bricolage

• Experimentation

„I think it will send a good signal […] But I don‘t know for sure. If we do it, we are just going to give it a try and see what happens“ (FOMC 2007, 14)

• Creative re-deployment

„I think a lot of the programmes that we have are actually open ended. The discount window is open ended in the sense that it‘s limited only by the amount of collateral the banks post there“ (FOMC 2008, 17)

Analysis

Means vs Ends: Practices of Bricolage

• Experimentation

„I think it will send a good signal […] But I don‘t know for sure. If we do it, we are just going to give it a try and see what happens“ (FOMC 2007, 14)

• Creative re-deployment

„I think a lot of the programmes that we have are actually open ended. The discount window is open ended in the sense that it‘s limited only by the amount of collateral the banks post there“ (FOMC 2008, 17)

• Retrospective

„people became more familiar with it and we were able to say: this is necessary“ (I 10)

Conclusion

Conclusion

• liquidity swap lines not mere functionalist response to problem in off-shore dollar markets
• apppear as functionalist, however bricolage uncovers
  • outlines agency to account for timing
  • precise practices (Expermimentation, Creative Re-Deployment, Retrospective) $\neq$ rationalist
  • fragilities entailed (non-optimal soution) $\rightarrow$ fix for top of hierarchy, not for periphery

$\hookrightarrow$ Generalizable claims upon decision-making:

$\rightarrow$ standing facilities will be introduced when market expectations converge, e.g. standing repo facility

Conclusion

• liquidity swap lines not mere functionalist response to problem in off-shore dollar markets
• apppear as functionalist, however bricolage uncovers
  • outlines agency to account for timing
  • precise practices (Expermimentation, Creative Re-Deployment, Retrospective) $\neq$ rationalist
  • fragilities entailed (non-optimal soution) $\rightarrow$ fix for top of hierarchy, not for periphery

$\hookrightarrow$ Generalizable claims upon decision-making:

$\rightarrow$ standing facilities will be introduced when market expectations converge, e.g. standing repo facility

$\Rightarrow$ Ontological Claim: Central Bankers are Bricolageurs?

Thanks

• http://twitter.com/nullnein
• http://twitter.com/LeaFeuDeJoie

From Bazooka to Backstop: The Emergence of a Permanent International Lender of Last Resort: The C6 Liquidity Swap Line Network emerges through design by bricolage

Additional slides

Central Bankers are Bricolageurs

https://www.gfmag.com/magazine/october-2016/have-central-bankers-finally-reached-their-limits

Central Bankers are Bricolageurs

https://www.gfmag.com/magazine/october-2016/have-central-bankers-finally-reached-their-limits

Hypotheses

Eurodollar Markets