Moral Standards and Means of Political Control in the New Era of Central Banking

Central banks are crucial regulatory authorities located at the heart of capitalist systems since they are playing an interface role between financial markets and democratic states.  Before the 2007 financial crisis, central banks were hum-drum institutions which were granted a high-level of independence in order to achieve price stability. Since the outbreak of the crisis, central banking entered a new era. In order to stabilize monetary and debt markets, central bankers engaged in active balance-sheets management and consequently increased their intermediation role in the economy. In addition, central banks were delegated further supervisory competencies over the banking and financial system. Yet, despite this changing role and their extension of power, the level of political control over central banks activities remained very low and the arguments of the political debate about central banking are still anchored in the pre-crisis paradigm.

The goal of this communication is to analyse the emerging issues of this new central banking era from a moral point of view in order to renew the terms of the political debate, and hence the means of political control over central banks. Indeed, in 2008, central banks gradually moved from interest rates policies that were trying to influence indirectly economic and financial activities to balance-sheet policies that have a direct impact on the valuation of financial assets without having any blueprint about the outcomes of this paradigmatic shift. More than seven years later, we know that central banks successfully managed to stabilize the banking and financial system but these short-term success could be hampered by potential middle and long term unintended consequences, such as the rise of economic inequalities, the resurgence of asset bubbles and the misallocation of real resources.

The evaluation of central banks' unconventional measures should thus be a moral evaluation : Did the central bankers consider these possible unintended consequences? How did they weight these possible negative outcomes against the short-term benefits? Should central bankers have dynamic duties in the process of financial stabilization? What are the social groups which benefit or suffer from these measures? Who should take care of the unintended consequences of monetary policies?   

From this moral evaluation, this communication proposes a new framework of political control over central banking. I argue that elected officials should not only focus on the traditional tools of monetary policy (such as interest rate settings) but they should evaluate the desirability of unconventional measures according to the likeliness of their unintended consequences. This new framework would help to reorganize partisan preferences about central banking activities.

From a methodological point of view, my analysis relies on a corpus of central bankers' discourses from the Fed, the BoE and the ECB. I restricted these discourses to the central banker’s justifications about their measures and I run a Bolean search in order to summarize their positions. Then, I analyse how central bankers unconventional measures are evaluated by elected officials with a study of the Fed and the ECB agents hearings in front of parliaments.