Central banks Archives - Politics Today https://politicstoday.org/tag/central-banks/ Tue, 21 Mar 2023 06:44:18 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.8 The Rise of Central Banks: State Power in Financial Capitalism https://politicstoday.org/central-banks-state-power-financial-capitalism/ Tue, 21 Mar 2023 06:44:18 +0000 https://politicstoday.org/central-banks-state-power-financial-capitalism/

How is the rise of central banks more problematic than many might expect? Leon Wansleben provides answers in his new book.

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ow have we arrived at an era of easy money? What role do central banks play and how has their relationship with finance changed over the years? Do central banks offer more stability to avoid crises? How is the rise of central banks more problematic than expected? Leon Wansleben provides answers in his new book.

When so much has been written about central banks, one might question what there is more to know. Wansleben goes over previously ignored original sources in extensive archival work and interviews for his research to uncover the practices of central banking, its relationship with finance, and accounts of the origin and consequences of the dominance of central banks in economic policy.

For a long time central banks mattered as managers of the international currency order, but they were not the key movers and centers of power. That began to change in the 1970s with the rising inflation, and since then central banks have greatly increased their influence. In The Rise of Central Banks: State Power in Financial Capitalism, Wansleben provides a history and explanation of this rise and why it matters.

Read: The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism

Central banks have been expected to be beacons of stability, and in the 1990s and 2010s, they assumed even larger responsibilities. However, global finance has experienced many rocky turns and crises over the years; the 2008 financial crisis and the COVID-19 pandemic being two major ones ingrained in our memory. What seems to be going wrong with the equation?

Could central banks’ policies be counterintuitively destabilizing? It turns out, yes. As central banks became dominant, their policy innovations allowed them to use privileged relationships with expanding financial markets to govern the economy. But, by relying on markets, central banks fostered excessive credit growth and cultivated an unsustainable version of capitalism.

How has this change occurred? Many commentators argue that ideas, mainly concerned with controlling inflation, drove change and shifted economics from Keynesianism to monetarism. Others point to the stagflation crises, which saw capitalists and workers in dispute, redistributing power from elected governments to markets and central banks as capitalists pushed deregulation and disinflation. Central banks became the advocates and executers of “hard money” policies.

Read: The Economic Weapon: The Rise of Sanctions as a Tool of Modern War

Wansleben looks introspectively within the central banks themselves, as they are both bureaucratic bodies and banking organizations that operate in private markets, and combines these approaches with the evolving practices of central banking to explain how we arrived at an era of excessive finance. He compares developments in the U.S., the U.K., Germany, and Switzerland to find that central bankers’ policy innovations were an important ingredient of change.

The Rise of Central Banks provides a political economy and sociological perspective on how bureaucrats innovate tools, how these tools are woven into the fabrics of economic structures and generate infrastructural power for particular state organizations, and how such intertwinements produce both intended and unintended effects. The Rise of Central Banks shines light on the agency of bureaucrats and calls upon society and elected leaders to direct these actors’ efforts toward more progressive goals.

Leon Wansleben, The Rise of Central Banks: State Power in Financial Capitalism (Harvard University Press, 2023) ISBN 9780674270510, 352 pages

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]]> Fiscally Prudent and Monetarily Strict: Is This What Good Governance Means? https://politicstoday.org/fiscally-prudent-and-monetarily-strict-is-this-what-good-governance-means/ Thu, 19 Jul 2018 22:56:33 +0000 https://politicstoday.org/fiscally-prudent-and-monetarily-strict-is-this-what-good-governance-means/

Ironically, this is the same era in which the rhetoric that central banks around the world gained their “independence” has become widespread. What happened actually was central banks have become dependent on the financial industry, as they were dependent on states in the Bretton Woods era.

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The world economy has been witnessing a rapid transformation for the last four decades together with staggeringly growing influence of financial industry under the current economic and financial system, a.k.a. neoliberalism, which will definitely give way to another system sooner or later.

One should note that the previous system, namely Bretton Woods, had lasted only three decades, and the neoliberal system still lingers on, though showing real signs of strains. For example, the current system needs constantly growing economies, however the 2008-09 global financial crisis pointed out that this would be more and more difficult for the world economy to achieve under the “current” economic and financial system, or paradigm.

However, we live in the here and now and have to cope with all the “intricacies” of neoliberalism. First and foremost, with the rapid financialization of the world economy, countries around the world have become much more susceptible to the caprices of global finance. We witnessed hundreds of financial crises in the last four decades, unlike the Bretton Woods era, in which only a few of them occurred. Moreover, most countries in the world have seen their ability to pursue an independent monetary policy and fiscal policy to erode significantly.

Ironically, this is the same era in which the rhetoric that central banks around the world gained their “independence” has become widespread. What happened actually was central banks have become dependent on the financial industry, as they were dependent on states in the Bretton Woods era. There is nothing as real independence and it is very clear that for central banks being dependent on the state is much more democratic than the other way around. However, one has to take into account the sheer power of global finance and the “rules” of the current system when talking about monetary policy. A country can freely and happily pursue looser monetary policy than other countries when international capital flows are restricted. For example, this was what France did for a long time in the Bretton Woods era, when her neighbor West Germany had been implementing stricter monetary policy.

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Moreover, fiscal policy in the current system is much more critical than in the previous system. A country who is pursuing a somewhat loose fiscal policy could be punished intensely and with a mind-boggling rapidity by “financial markets.” Even a rumor that this country will spend beyond her means and that “there is now a possibility” that the financial situation of the country will deteriorate could trigger some kind of a “panic” in the financial markets. So, in the new system not only central banks, but also most countries have been “tamed” to a great extent.

It should be underscored that for a government being fiscally responsible is a good trait. However, the line between being fiscally disciplined and profligate is significantly blurred and apparently it is “up to” the financial markets to decide which country falls which side of that line through various and numerous “country reports” of credit rating agencies, IMF and the like.

All in all, we need to understand clearly what neoliberalism has to offer and dictate us, and what choices we have in the current system. One should note that “good” governance does not mean being as much fiscally prudent or monetarily strict as possible, i.e. to the extent that financial markets are totally satisfied with the “governance” of the country. In the end, one should remember that the nature of the relationship between financial industry and real industry/households is conflict of interests. This is a redistribution game afterall.

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