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- Herausgeber: John Wiley & Sons
- Kategorie: Geisteswissenschaft
- Serie: Blackwell Companions to History
- Sprache: Englisch
Central banks have become the go-to institution of modern economies. In the wake of the 2007 financial crisis, they injected trillions of dollars of liquidity – through a process known as quantitative easing – first to prevent financial meltdown and later to stimulate the economy. The untold story behind these measures, and behind the changing roles of central banks generally, is that they have come at a considerable cost.
Central banks argue we had no choice. This book offers a powerfully original examination of why this claim is false. Using examples from Europe and the US, the authors present and analyse three specific concerns about the way central banks in developed economies operate today. Firstly, they show how unconventional monetary policies have created significant unintended negative consequences in terms of inequalities in income and wealth. They go on to argue that central banks may have become independent of governments, but have instead become worryingly dependent on financial markets. They then proceed to analyse how central bankers, despite being the undisputed experts on monetary policy, can still err and suffer from multiple forms of bias.
This book is a sobering and urgent wake-up call for policy-makers and anyone interested in how our monetary and financial system really works.
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Veröffentlichungsjahr: 2018
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Contents
Cover
Copyright
Acknowledgement
Introduction: Central Banks Ought to Serve the People
Notes
1 Central Banking: The Essentials
The Central Bank Independence era
Central banking after 2007
Notes
2 Central Banking and Inequalities
Why care about inequalities?
The distributive impact of monetary policy
The intuitive solution
The challenge to integration of policy objectives
Conclusion
Notes
3 Central Banking and Finance
Central banking and the pre-crisis financialisation of the banking sector
The idea side: why do central bankers believe in market-based banking?
The interest side: what do central bankers gain from the expansion of financial markets?
Post-crisis central banking and financial dominance
Infrastructural power
The power of weakness
Conclusion
Notes
4 Central Banking Expertise
How to evaluate testimonial experts: a procedural framework
Central bankers and transparency
Central bankers and criticism generation
On the amount of criticism
On the diversity of criticism
Central bankers and dissent uptake
Conclusion
Notes
5 Whither Central Banking? Institutional Options for the Future
Immediate reforms
Fundamental reforms
Conclusion
Notes
End User License Agreement
Guide
Cover
Table of Contents
Begin Reading
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The Future of Capitalism series
Steve Keen, Can We Avoid Another Financial Crisis?
Ann Lee, Will China’s Economy Collapse?
Danny Dorling, Do We Need Economic Inequality?
Malcolm Sawyer, Can the Euro be Saved?
Chuck Collins, Is Inequality in America Irreversible?
Peter Dietsch, François Claveau and Clément Fontan, Do Central Banks Serve the People?
Do Central Banks Serve the People?
Peter DietschFrançois ClaveauClément Fontan
polity
Copyright © Peter Dietsch, François Claveau, Clément Fontan 2018
The right of Peter Dietsch, François Claveau, Clément Fontan to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First published in 2018 by Polity Press
Polity Press65 Bridge StreetCambridge CB2 1UR, UK
Polity Press101 Station LandingSuite 300Medford, MA 02155, USA
All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.
ISBN-13: 978-1-5095-2578-2
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Names: Dietsch, Peter, author. | Claveau, François, author. | Fontan, Clément.Title: Do central banks serve the people? / Peter Dietsch, François Claveau, Clément Fontan.Description: Cambridge, UK ; Medford, MA : Polity Press, 2018. | Series: The future of capitalism | Includes bibliographical references and index.Identifiers: LCCN 2018001627 (print) | LCCN 2018002716 (ebook) | ISBN 9781509525805 (Epub) | ISBN 9781509525768 (hbk) | ISBN 9781509525775 (pbk)Subjects: LCSH: Banks and banking, Central. | Monetary policy. | Banks and banking--Customer services.Classification: LCC HG1811 (ebook) | LCC HG1811 .D545 2018 (print) | DDC 332.1/1--dc23LC record available at https://lccn.loc.gov/2018001627
The publisher has used its best endeavours to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.
Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.
For further information on Polity, visit our website: politybooks.com
Acknowledgements
We are grateful to numerous colleagues for providing feedback on this project. Special thanks go to Romain Baeriswyl, Benjamin Braun, Boudewijn de Bruin, Josep Ferret Mas, Randall Germain and Pierre Monnin. Previous versions of the manuscript were presented at the Chaire Hoover at the Université catholique de Louvain-la-Neuve, Erasmus Universiteit Rotterdam, University of Gothenburg, McGill University, Ottawa University and at the Centre de recherche en éthique (CRE) in Montreal – thank you to all participants in these events. We also thank Jérémie Dion for his invaluable research assistance. Finally, we are grateful for the comments from two anonymous referees as well as from our editor at Polity, George Owers. This research has been supported by the Social Sciences and Humanities Research Council of Canada (SSHRC), the Canada Research Chairs Program, the Fonds de Recherche du Québec – Société et Culture (FRQSC), and the Wallenberg Foundation.
Introduction: Central Banks Ought to Serve the People
Central banks today could not make it any clearer: their sole legitimate purpose is to serve the public interest. Janet L. Yellen, chair of the US Federal Reserve until February 2018, states that ‘[i]n every phase of our work and decisionmaking, we consider the well-being of the American people and the prosperity of our nation’.1 Mark Carney, Governor of the Bank of England, refers back to the 1694 Charter for the ‘timeless mission’ of his institution: ‘its original purpose was to “promote the publick Good and Benefit of our People. . .”’.2
In the same 2014 speech, Carney emphasises that what it means to serve the people has shifted over time: ‘In 1694 promoting the good of the people meant financing a war with France.’3 In light of the events since the onset of the financial crisis in 2007, it appears that what serving the people entails is shifting yet again. Indeed, over the last ten years, central banks have moved into previously uncharted territory with policy measures such as quantitative easing (QE). These measures have inflated the balance sheets of major central banks – by five times for the Federal Reserve and the European Central Bank, and by more than ten times for the Bank of England – and radically changed the role they play in our economies. Christian Noyer, then governor of the Banque de France, acknowledged in 2014 that central banks became ‘the only game in town’4 as they took on more and more responsibilities to stabilise volatile and risky financial systems.
In this shifting landscape, can we be confident that what central banks do, and what they are asked to do, best serve the people? In particular, do central banks sufficiently take into account the side effects of their unconventional measures? Do they do enough to avoid another financial crisis? Should we trust central bankers when they intervene as experts in public debates? These are the questions at the heart of this book.
Situated at the interface between governments and financial markets, central banks are one cog in a complex institutional machinery, which has been built over the years to regulate the economy and promote the public interest. The functions given to this cog and its interactions with various other parts of the machinery have changed significantly over time. The current thinking about how central banks should serve the people mostly conforms to a template that spread like wildfire throughout the world in the 1990s. This template prescribes that the central bank should have narrow regulatory goals – archetypally limited to price stability – and that it should not coordinate with other parts of the machinery, especially not with the legislative and executive branches of the State.
This book is built on the premise that an in-depth evaluation of the role of central banks in society should not take this template as given. The increased importance of monetary policy in the macroeconomic toolkit since 2007 confers additional importance to this project. Our main contribution lies in defending the claim that, on three matters, central banks today do not seem to best serve the people in their monetary zone. In Chapter 2, we maintain that the inegalitarian effects of monetary policy since the 2007 crisis are worrisome, and that the arguments for disregarding them when formulating monetary policy are dubious. In Chapter 3, we argue that the current institutional configuration is favouring the interests of the financial sector at the expense of the broader public interest. In Chapter 4, we diagnose a conflict of interest inside central banks between two types of expertise they produce, which undermines the trust we can have in the information they provide on some topics. With these three concerns in mind, the concluding chapter indicates an array of policy alternatives that could make central banks better servants of the public.
Two conditions must be in place to productively discuss how central banks can best serve the people in the future. First, participants in the discussion must understand how central banking works. The next chapter aims to supply the essential elements of such an understanding to non-specialist readers. Second, participants must be ready to seriously entertain the possibility that the current institutional configuration is not optimal. This condition does not seem to be met today among the specialists on central banking, that is, professional economists. Ninety-four per cent of economists who participated in a recent survey agreed that ‘it is desirable to maintain central bank independence in the future’ – ‘central bank independence’ being the phrase used among specialists to describe how the central bank as a cog currently relates to other parts of the institutional machinery.5 This book argues that this conventional wisdom needs to be revisited in light of the recent dramatic changes both in how the financial side of a modern economy works and concerning the policy instruments employed by central banks.
Notes
1
. Board of Governors of the Federal Reserve System, ‘Careers at the Federal Reserve Board’,
www.federalreserve.gov/careers/files/brochure.pdf
.
2
. Mark Carney, ‘One Mission. One Bank. Promoting the Good of the People of the United Kingdom’, speech at City University London, 18 March 2014, 3,
www.bis.org/review/r140319b.pdf
.
3
. Ibid., 5.
4
. Christian Noyer, ‘Central Banking: The Way Forward?’, opening speech to the International Symposium of the Banque de France, 7 November 2014,
www.bis.org/review/r141110c.htm
.
5
. Center for Macroeconomics Surveys, ‘The Future of Central Bank Independence’, 20 December 2016,
http://cfmsurvey.org/surveys/future-central-bank-independence
.
1Central Banking: The Essentials
In this preliminary chapter, we aim to provide enough information about the workings of central banking for a non-specialist audience to be able to follow our subsequent discussion.
The characteristic that singles out the central bank among all of the institutions in a currency area is that it has a monopoly over the issuance of legal tender. It is not the only institution that ‘creates money’ – in fact, commercial banks are the principal creators of money today – but central bank money has a special status: it is the ultimate form of settlement between economic agents. All other monies (for instance, the sum that is credited to your bank account when you contract a loan) are promises ultimately redeemable in central bank money.
This monopoly puts the central bank in a favourable position to pursue two goals that a society is likely to have: financial stability and price stability. First, it can intervene at moments of financial turmoil to act as a lender of last resort because it can create liquidity without constraints. Second, it can contribute to a stable price level by manipulating the price of credit. Although central banks have at times had various other roles (promoting employment, managing the exchange rate and the national debt, supervising financial institutions, etc.), the goals of financial stability and price stability are constantly present. Note that, for the sake of clarity and brevity, this book focuses on three central banks, namely the European Central Bank (ECB), the Federal Reserve (Fed) and the Bank of England (BofE).
In addition to the extent of their mandates, a changing characteristic of central banks has been their degree of coordination with other state actors, especially with elected officials. Before the 1990s, governments typically had considerable direct influence on monetary policy. Things have changed with the worldwide generalisation in the 1990s of a template known as ‘Central Bank Independence’ (CBI).1 The next section discusses what central banking was like under this template. With the 2007 financial crisis, central banking has changed yet again – these changes are introduced in the second section of the chapter. In both sections, we have to get into somewhat technical discussions about the instruments of monetary policy. We keep the technicalities to the bare minimum needed to follow the arguments of the rest of the book.
There is also a general lesson to be learned from this chapter. The breadth of the mandate of central banks and their degree of coordination with other state actors are two variables that, historically, have been positively correlated. In other words, the typical pattern is: the higher the degree of independence of central banks, the smaller their set of goals.2 As we will see, the CBI template respected this pattern, but the current situation does not.
The Central Bank Independence era
The CBI template calls for various protections to ensure that central banks are not subject to ‘political’ pressures in setting their monetary policy. We will discuss the theoretical underpinnings of this prescription at length in the next chapter. For now, the following should suffice: the general worry is that, without a high degree of independence, central bankers might not be credible to market participants when stating that they are thoroughly committed to fight inflation. Markets might think that politicians will veto a hawkish monetary policy because they fear lower short-term economic growth, higher costs of servicing public debt, and the impact these might have on their chances of winning elections.
Even with laws prohibiting elected officials from directly telling central bankers what to do, one might worry that politicians could still exert strong indirect pressures by threatening them with funding cuts. But this trick cannot work with central banks because, unlike most other public agencies, they generate their own income (from the interest on liquidity lent and the returns on their financial assets). Consequently, the distance from political influence created by implementing the CBI template is real.
The CBI template not only promoted a high degree of independence of central banks, it also defined their mandate narrowly by historical standards. The main task of central banks became price stability. The focus on one objective follows the historical pattern associating a high degree of independence with narrow mandates, but a further element is needed to understand why price stability became in effect the only item on the agenda. What happened to the goal of financial stability? As Chapter 3
