Hi all,

thanks for those who played the Game of Empathy with the word Central Bank, especially with 15 words, which I admit was quite a challenge. :)

For those who have a slightest interest in the economy, “Central Bank” is one of the terms we hear quite often, especially in times of crises, but without knowing what it actually is. So, what is a Central Bank and what is its purpose? Very few people know the answer, although it is the very foundation of all our economic and financial system. It is funny that we don't learn that in school. :)

One of the biggest risks for the economy, according to economists, is that States (or Kings/Emperors in the past) emit a lot of money to finance their own projects, thus leading to creating too much money and creating hyperinflation (uncontrolled and exponential raise of prices). Examples such as Germany before WWII, Argentina, Zimbabwe, Venezuela, and others should ring to your ears here. The result is bank notes of millions if not billions of monetary units, and people wandering around with wheelbarrows full of cash to pay for their daily expenses.

To avoid this, bankers and economists have created Central Banks, which are in charge of managing the monetary policy. Because of what I wrote in the previous paragraph, it is crucial that Central Banks should be totally independent from the Governments, and they also should NOT print money directly for the Government. Instead, they regulate private banks, and governments should get money from private banks or from the markets. Well, at least that's the theory. :)

So, when looking at the results of the game, having the word “money” at the top of the list with 100% participants putting that word in the list is not a big surprise. :) However, it is funny that all other words have been really underused. I was thinking that, with 15 possible words, some top words would have actually been used by everyone. The second word, “bank”, is of course a given, even though Central Banks are more “regulatory” organizations than banks. They are in fact the banks for private banks: private banks hold an account at the central bank and can exchange money through the central bank. “gold” was unsurprisingly a popular term, chosen by 9 out of 21, but it is still less than half of the participants. Indeed, central banks all over the world are well known for holding gold as a reserve of value.

But then, words associated with central banking, such as “interest rates” or “regulation” are very far down. “Interest” was chosen by only 6 participants out of 21 and “policy” by only 5. Actually one of the major roles of a central bank is to play with interest rates to stabilize currencies. Indeed, when interest rates go up, people think twice before getting a credit, and monetary creation slows down. On the other hand, when interest rates are driven down, people think that it's probably a good time to make a credit with such little interest, and monetary creation goes up. In case you are not aware of it, 95% of the money in the US and the Eurozone is created by private banks: every time they grant a credit, they create the corresponding money. They are not “lending” existing money. And that money is destroyed when the credit is being paid back (except for the interest, which the bank keeps).

Another important role of central banks is to emit “fiat” (chosen by only one person apart from me) money: coins (7 occurrences in the game) and banknotes (notes: 4, banknote: 3). Again, although this is at the heart of central banking, those terms were not picked so much.

Finally, the total absence of the term “quantitative easing” in the answers is very telling. Central banks, both the Fed in the US and the European Central Bank have been injecting money in the financial sphere, by a mechanism called “quantitative easing” for the past 10 years, in order to keep the financial system afloat after the 2008 crisis. With 15 possible words, I was hoping that this would pop up, but it didn't. Quantitative Easing has one very interesting impact: the amount of money in the financial system is doubling every 10 years in the Eurozone, and it's even worse for the USD. But as this money stays only in speculation and is hoarded by banks, it doesn't drive inflation as it should. There would be many more thing to say about this but I don't want to bore you all to death. :)

To summarize this social experiment, I can conclude that it totally confirms what I have been witnessing in France around me: people have no clue how the economy and the financial system work. And yet they deal and/or struggle with money daily. One interesting thing that popped up in the answers is “cryptocurrency” or “bitcoin”, which are definitely not associated with central banking (although most central banks nowadays are getting interested and want to create their own cryptocurrency - which makes no sense at all, “centralized cryptocurrency” is an interesting oxymoron!). The thing is that people finally raise some questions about money lately, and it is often the case during crises. If you want to test your knowledge about money, I can advise you a simple quiz.

Feel free to comment here if you have anything to say about the subject, which should be taught in school and a subject that every single person should know about. Knowledge is power, and when it comes to money, not knowing is leaving us powerless.

Remember this: every time you use some money that has been created by someone else, you are the de facto slave of that monetary creator. Every time you delegate some power (monetary creation, information, legislative, judiciary, executive…) without having a strict and full control over the delegates, you are losing your sovereignty as a human being and opening up possibilities for abuse.

Thanks for the treatise, jytou!

Though you are aware, it's worth pointing out for others that the Game of Empathy is not an ideal method for revealing people's knowledge of a subject. The idea of the game is to give answers you think the most other people will give. And that starts to include a meta-aspect of how the recurring group of players has behaved over the past several games. And that can start to reinforce on itself even if most players are giving answers they know shouldn't be included in a school test of the subject!

Having said that, our group of LG players is probably far more familiar with central banks than a random group. But you are certainly correct that it's a powerful force that's mysterious and complicated even to people aware of it.

Very good point indeed! The Game of Empathy players become a “tribe” with their own rules and preferences with a feedback loop from one game to the next. :) There are currently some very strong trends for sure! :) I did hope that by giving 15 words, I would have enough diversity to avoid some of the bias. :)