There is a paradox about macroeconomic demand management in an open economy. A central bank can raise interest rates and yet monetary conditions end up looser. In a world of open capital markets, the central banker’s principal instrument for constraining economic excesses – setting interest rates – has been blunted.

The problem is that the authorities have had only one weapon in their monetary armoury. They need two. It is time to give them the power to influence the supply of credit, to augment interest rate policies which mostly affect the demand for credit.