Friday 14 September 2012
When we need money, we go to the bank and when our banks need money, they usually turn to the RBI or the Reserve Bank of India.
Similarly to deepen international co-operation and make the business of money simple, all banks the world across, turn to one single entity to regulate currency, prices and subsequent transactions - The Bank of International Settlements (BIS).
Post World War I, under the Treaty of Versailles, following defeat, Germany and its Allies were held responsible for all the "loss and damage" suffered by the Allies and were required to make payments and transfers of property to make good such a loss. The plan for such repayments was formulated by an American - Owen D. Young and was overlooked by a committee set up in 1930 which included eminent banker J.P. Morgan and Thomas W. Lamont. Although the plan was presented in June 1929, it was formally adopted in January 1930, with the establishment of an International Bank of Settlements to handle such transfers. Thus, the BIS was established in 1930 in Hague and is the world's oldest financial organisation promoting international trade and co-operation.
Although established in Hague by countries such as the US, UK, Belgium, France, Germany, Italy and Japan, the location for the BIS was eventually moved to Basel, Switzerland, given the prevalent issues of connectivity faced by the Banks of London, Brussels or Amsterdam. Switzerland, by nature of being independent and neutral, offered the BIS freedom from the influences of the erstwhile superpowers, thereby ensuring unbiased working free from manipulation while Basel as a location, offered excellent connectivity to all members in every direction.
Although it was established primarily to deal with post war payments, the Great Depression of 1929, quickly changed the role of the BIS to being a more active member of global banking and focus on ensuring co-operation amongst the central banks of the world - a role that defines the BIS till date.
Post World War II, came the Bretton-Woods International Monetary System - a system of payments that allowed currency exchange at fixed but adjustable rates of exchange. Through the rise and fall of this System, the BIS played an important role as the key technical advisor to getting the European Union back to having all its currencies fully convertible by abolishing the various stringent foreign exchange protocols and controls. As money is the medium of exchange for global transactions, it soon followed that the BIS would also control and regulate FOREX transactions globally and be in charge of disseminating information to member countries regarding currency strength, future prices, expected changes in the economic climates etc to members who comprise Central Banks such as the RBI, representing different countries and diversities.
The BIS also offered assistance in times of crisis given price fluctuations of bullion and currency, checking reserves and other imbalances that would adversely affect the International Monetary System both in the era of fixed valuations and then, in the time of floating currencies, starting in 1973.
Today, the BIS have consolidated its role as the Central Bank for Central Banks the world over. From ensuring co-operation on transactions and monetary policy, the BIS has also provided traditional banking services to member banks including acting as agents and trustees. The BIS has also being instrumental in regulating the International Markets through the 1988 Basel Capital Accord and the more recent Basel II revision that India amongst other countries is now implementing across banks and financial services in the country.
As a Central Bank to Central Banks, BIS has the following objectives - a well-designed financial safety net supported by strong prudential regulation and supervision, effective laws that are enforced, sound accounting and disclosure regimes
The other roles performed by the BIS are -
- Providing a central and neutral platform for discussion and decision making
- Supervision and Regulatory Control
- Providing research and information to member banks on international trends, factors and possible issues that may affect currency price
- Being and agent or trustee, representing central banks in international transactions or operations
- Being a counterparty or clearing house for financial transactions between central banks the world over
The BIS has three global offices. Headquartered in Basel, Switzerland, it has regional offices in Hong Kong and Mexico. The BIS is further divided into three departments that function towards international financial stability - Monetary and Economic Department responsible for research and statistics, Banking Department providing essential banking services to central banks and the General Secretariat that provides corporate services and support to the BIS itself.
The BIS is also the meeting place of the G10 comprising France, Germany, Belgium, Italy, Japan, Netherlands, Sweden, UK, US and Canada that meet at the BIS every second month to debate on matters of international finance.
The BIS is also home to several committees that work towards its primary goal of financial stability. These are the Basel Committee on Banking Supervision, the Committee on the Global Financial System, the Committee on Payment and Settlement Systems and the Markets Committee.
With 140 customers and two linked trading rooms, the BIS works at offering safety and liquidity across all financial transactions to all its members which now include several financial institutions in addition to central banks. Thus, it is biz at BIS that makes money go around the world over!
