Richard Werner

Richard Andreas Werner (born January 5, 1967) is a German economist and banking expert who is a university professor at De Montfort University.

Werner proposed the term quantitative easing, as well as the expression "QE2" in 2009 to refer to the need to implement true quantitative easing as an expansion in credit creation. He has also proposed the "Quantity Theory of Credit", or "Quantity Theory of Disaggregated Credit", which disaggregates credit creation used for GDP transactions on the one hand, and financial transactions on the other hand.

Professor Werner published the first empirical test of the three theories of banking (the financial intermediation theory, the fractional reserve theory and the credit creation theory) in an internationally reputed academic journal and thus demonstrated for the first time in the likely 5000-year history that each bank has the power to create money newly: When we take out a loan from a bank, the money will be newly created and added to the money supply. This has important implications, which are shown in the Quantity Theory of Disaggregated Credit published earlier by Professor Werner.

Early life

In 1989, Werner earned a BSc at the London School of Economics (LSE). Further studies at Oxford University were interrupted by a year studying at the University of Tokyo. His doctorate in economics was conferred by Oxford. In 1991, he became European Commission-sponsored Marie Curie Fellow at the Institute for Economics and Statistics at Oxford. His discussion paper at the institute warned about the imminent 'collapse' of the Japanese banking system and the threat of the "greatest recession since the Great Depression". In Tokyo, he also became the first Shimomura Fellow at the Research Institute for Capital Formation at the Development Bank of Japan. He was a Visiting Researcher at the Institute for Monetary and Economic Studies at the Bank of Japan; and he was a Visiting Scholar at the Institute for Monetary and Fiscal Studies at the Ministry of Finance.

Career

Werner was chief economist of Jardine Fleming from 1994 to 1998 and published several articles on the Japanese credit cycle and monetary policy, many of which are in Japanese. In 1997, he joined the faculty of Sophia University in Tokyo. Werner is currently teaching at the University of Southampton. He is the founding director of the university's Centre for Banking, Finance and Sustainable Development and organiser of the European Conference on Banking and the Economy (ECOBATE), first held on 29 September 2011 in Winchester Guildhall, with Lord Adair Turner, FSA Chairman, as keynote speaker. From 2011 to 2019, he was a member of the ECB Shadow Council.

Werner has developed a theory of money creation called the Quantity Theory of Credit, which is in line with Schumpeter's credit theory of money. He has argued, since 1992, that the banking sector needs to be reflected appropriately in macroeconomic models since it is the main creator and allocator of the money supply, through the process of credit creation by individual banks.

Werner's book Princes of the Yen was a number one general bestseller in Japan in 2001. The book covers the monetary policy of the Bank of Japan specifically and central bank informal guidance of bank credit in general.

Werner proposed a policy he called "quantitative easing" in Japan in 1994 and 1995. At the time working as chief economist of Jardine Fleming Securities (Asia) Ltd. in Tokyo, he used this expression during presentations to institutional investors in Tokyo. It is also, among others, in the title of an article he published on September 2, 1995, in the Nihon Keizai Shinbun (Nikkei). According to Werner, he used this phrase in order to propose a new form of monetary stimulation policy by the central bank that relied neither on interest rate reductions (which Werner claimed in his Nikkei article would be ineffective) nor on the conventional monetarist policy prescription of expanding the money supply (e.g. through "printing money", expanding high-powered money, expanding bank reserves or boosting deposit aggregates such as M2 –all of which Werner also claimed would be ineffective). Instead, Werner argued, it was necessary and sufficient for an economic recovery to boost "credit creation", through a number of measures. He also suggested direct purchases of non-performing assets from the banks by the central bank; direct lending to companies and the government by the central bank; purchases of commercial paper, other debt, and equity instruments from companies by the central bank; and stopping the issuance of government bonds to fund the public sector borrowing requirement, instead having the government borrow directly from banks through a standard loan contract.

Selected works

Books

• Ryan-Collins, Josh; Werner, Richard; Jackson, Andrew (2012). Where Does Money Come From?: A Guide to the UK Monetary & Banking System (2nd ed.). London: New Economics Foundation. p. 178. ISBN 978-1908506238. OCLC 816167522.
• Neue Wirtschaftspolitik, München: Vahlen Verlag (2007)
• New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic Performance (2005)
• Princes of the Yen: Japan's central bankers and the transformation of the economy (2001)
• 『虚構の終焉』 = Towards a new macroeconomic paradigm. Tokyo: PHP. (2003)
• 『謎解き!平成大不況 : 誰も語らなかった「危機」の本質』 = The enigma of the great recession (2003)
• Three essays on Japanese macroeconomic policy in the 1980s and 1990s (2006)
• 『福井日銀・危険な素顔』 =　The Bank of Japan under Toshihiko Fukui, with M. Ishii. Tokyo: Appuru Shuppan. (2003)
• 『不景気が終わらない本当の理由』 =　Central Banking and Structural Changes in Japan and Europe. Tokyo: Soshisha. (2003)
• Dismantaling the Japanese Model, with M. Kikkawa. Tokyo: Kodansha. (2003)
• Princes of the Yen, Japan's Central Bankers and the Transformation of the Economy. New York: M.E. Sharpe.
• 『円の支配者』. Tokyo: Soshisha (2001)

Chapters

• 1998 – "Bank of Japan window guidance and the creation of the bubble," in: Rodao, F. and A. Lopez Santos (eds.), El Japon Contemporaneo, Salamanca: University of Salamanca Press
• 2002 – "Macroeconomic Management in Thailand: The Policy-induced Crisis," in: Rhee, G.S. (eds.), Rising to the Challenge in Aisa: A Study of Financial Markets, Vol. II, Thailand, Manila: Asian Development Bank
• 2006 – "The relationship between interest rates and economic activity: How the conventional literature has dealt with the Japanese experience," in: Batten, J.A., Fetherston, T.A. and Szilagyi, P.G. (eds.), Japanese Fixed Income Markets: Money, Bond and Interest Rate Derivatives, Amsterdam: Elsevier (pp. 135–170)
• 2007 – "Europe’s choice and lessons from Japan: supply vs. demand policy, fiscal vs. monetary policy," in: Terzi, A. and J. Bibow (eds.), Euroland and the World Economy: Global Player or Global Drag, Basingstoke: Palgrave Macmillan
• 2007 – "The cause of Japan’s recession and the lessons for the world," in: Bailey, Coffey and Tomlinson (eds), Crisis or Recovery: Industry and State in Japan. Cheltenham: Edward Elgar
• 2008 – "Was sind die Voraussetzungen fuer ein gesundes Wirtschaftswachstum ohne Bankenprobleme?," in: Carl Spaengler KAG (ed.), 20 Fragen zur Geldanlage. Salzburg: Carl Spaengler Kapitalanlagegesellschaft mbH.

Journals

• 1994 – "Japanese Foreign Investment and the 'Land Bubble’," Review of International Economics, Vol. 2, Issue 2, June 1994, Oxford: Blackwell, pp. 166-178
• 1997 – "Towards a New Monetary Paradigm: A Quantity Theorem of Disaggregated Credit, with Evidence from Japan," Kredit und Kapital, Vol. 30, No. 2, July 1997, Berlin: Duncker & Humblot, pp. 276–309.
• 2002 – "Monetary Policy Implementation in Japan: What They Say vs. What they Do," Asian Economic Journal, Vol. 16, No.2, Oxford: Blackwell, pp. 111–151.
• 2003 – "Post-Crisis Banking Sector Restructuring and its Impact on Economic Growth," The Japanese Economy, vol. 30, no. 4, New York: M. E. Sharpe
• 2003 – "Aspects of Career Development and Information Management Policies at the Bank of Japan – a Frank Interview with a Former Central Banker," The Japanese Economy, vol. 30, no. 4, New York: M. E. Sharpe.
• 2003 – "A Reconsideration of the Rationale for Bank-Centred Economic Systems and the Effectiveness of Directed Credit Policies in the Light of Japanese Evidence," The Japanese Economy, vol. 30, no. 3, New York: M. E. Sharpe, pp. 3–45
• 2004 – "No Recovery without Reform? An Empirical Evaluation of the Structural Reform Argument in Japan," Asian Business and Management, vol. 3, no. 1, 2004, London: Palgrave Macmillan.
• 2009 – "Financial Crises in Japan during the 20th Century". Bankhistorisches Archiv, Beiheft 47, pp. 98–123
• 2011 – "Credit Supply and Corporate Capital Structure: Evidence from Japan", International Review of Financial Analysis, 20, pp. 320–334, DOI information: 10.1016/j.irfa.2011.05.002, with Kostas Voutsinas
• 2011 – "The Role of Monetary Aggregates in Chinese Monetary Policy Implementation", Journal of the Asia-Pacific Economy, 16, 3, pp. 464–488, with Yuanquan Chen
• 2011 – "Economics as if Banks Mattered – A Contribution Based on the Inductive Methodology", Manchester School, vol. 79, September, pp. 25–35. doi:10.1111/j.1467-9957.2011.02265_5.x
• 2012 - "Lessons from the Bank of England on ‘quantitative easing’ and other ‘unconventional’ monetary policies", with Victor Lyonnet, International Review of Financial Analysis, 25, pp. 1–17, doi: 10.1016/j.irfa.2012.08.001
• 2012 - "Towards a New Research Programme on ‘Banking and the Economy’ – Implications of the Quantity Theory of Credit for the Prevention and Resolution of Banking and Debt Crises, International Review of Financial Analysis, 25, pp. 94–105, doi: 10.1016/j.irfa.2012.06.002
• 2013 - "Towards a More Stable and Sustainable Financial Architecture - A Discussion and Application of the Quantity Theory of Credit", Kredit und Kapital, 46 (3), pp. 353–389
• 2013 - "Crises, the spatial distribution of economic activity and the geography of banking", Environment and Planning A, vol. 45, pp.  2789–2796,
• 2014 - "Can Banks Individually Create Money Out of Nothing? – The Theories and the Empirical Evidence", International Review of Financial Analysis, 36, pp. 1-19, doi: 10.1016/j.irfa.2014.07.015
• 2014 - "Enhanced debt management: Solving the eurozone crisis by linking debt management with fiscal and monetary policy", Journal of International Money and Finance, 49, pp. 443-469, doi: 10.1016/j.jimonfin.2014.06.007
• 2015 - "How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking", International Review of Financial Analysis, 36, pp. 71-77 doi: doi.org/10.1016/j.irfa.2014.10.013 https://www.sciencedirect.com/science/article/pii/S1057521914001434
• 2016 - "A lost century in Economics: Three theories of banking and the conclusive evidence", International Review of Financial Analysis, 46, July, pp. 361–379, doi: 10.1016/j.irfa.2015.08.014
• 2016 - "A half-century diversion of monetary policy? An empirical horse-race to identify the UK variable most likely to deliver the desired nominal GDP growth rate" with Josh Ryan-Collins and Jennifer Castle, Journal of International Financial Markets, Institutions & Money, 43 (July), pp. 158–176 doi: 10.1016/j.intfin.2016.03.009
• 2018 - "Reconsidering the role of interest rates in monetary policy: An empirical examination of the relationship between interest rates and nominal GDP growth in the U.S., U.K., Germany and Japan", with Kang-Soek Lee, Ecological Economics, 146, April, pp. 26-34 doi: 10.1016/j.ecolecon.2017.08.013
• 2018 - "Do FDI Inflows Generate Economic Growth in Large Developed Economies? A New Empirical Approach, Applied to Spain", with Jorge Bermejo Carbonell, Economic Geography, forthcoming, doi: 10.1080/00130095.2017.1393312

Papers

• 1991 – "The Great Yen Illusion: Japanese Capital Flows and the Role of Land," Oxford Applied Economics Discussion Paper Series, Oxford: Institute of Economics and Statistics, University of Oxford, No. 129, December
• 1993 – "Towards a quantity theorem of disaggregated credit and international capital flows," Paper presented at the Royal Economic Society Annual Conference, York, April 1993
• 2010 – Comment on Range of Methodologies for Risk and Performance Alignment of Remuneration [in the banking sector], official submission to public call for comments on ‘Range of Methodologies for Risk and Performance Alignment of Remuneration, Consultative Document’ by the Basel Committee on Banking Supervision, 14 October 2010, submitted 31 December 2010.
• 2010 – Towards Stable and Competitive Banking in the UK - Evidence for the ICB, submitted to the Independent Commission on Banking, UK (Chair: Professor Sir John Vickers), submitted 19 November 2010
• 2010 – Towards a Twenty-First Century Banking and Monetary System, Joint Submission to the Independent Commission on Banking, UK (Chair: Professor Sir John Vickers), with Ben Dyson, Tony Greenham, Josh Ryan-Collins, by the Centre for Banking, Finance and Sustainable Development, the new economics foundation, and Positive Money, submitted 19 November 2010 PDF
• 2010 – Comment on Strengthening the Resilience of the Banking Sector, official submission to public call for comments on ‘Strengthening the Resilience of the Banking Sector, Consultative Document’ by the Basel Committee on Banking Supervision, September 2009. Submitted 16 April 2010; published by the Bank for International Settlements, Basel.

Honors

• 2003 – World Economic Forum in Davos, "Global Leader for Tomorrow"

External links

• Official site