FSA chief: Central banks could finance govt deficits

7 February 2013

Central banks should be willing to directly finance government debt when such action is needed, the UK's most senior regulator believes.

Lord Turner, chairman of the Financial Services Authority (FSA), has said there should be a change in attitude towards so-called overt money finance (OMF) in the aftermath of the global economic downturn, the Independent reports.

In the past, this measure has consistently been blacklisted by policymakers on the grounds that it contributes to hyperinflation but, during a speech delivered at the Cass Business School in London, the FSA chief insisted OMF can act as a "useful medicine" at times like these.

Lord Turner explained that the policy "should not be excluded from consideration" by central banking officials, many of whom are desperately trying to come up with ways to stimulate growth and lift their nation out of recession.

"Governments and central banks together never run out of ammunition to create nominal demand. OMF can always achieve that and is the only policy lever certain to do so," he noted.

By Gary Cooper

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