First published in the Daily Maverick 168 weekly newspaper.
This was the question posed to the then president of the European Central Bank (ECB), Mario Draghi, in a lecture to the Kennedy School of Government at Harvard University in October 2013. Given the subsequent experiences of the past eight years of monetary experiments, it is a question worth re-asking.
Arch-Brexiteer Michael Gove, now Cabinet Office secretary, perhaps summed up an age of discontent with this self-anointed intellectual elite. His riposte – “I think the people of this country have had enough of experts” – has gone down in Tory infamy.
But the point is well made. After all, central bankers are mere unelected technocrats, albeit powerful ones. In addition, the traditional answer to what they busy their quotidian lives with – managing interest rates and money supply to keep inflation under control – now sounds quaintly old-worldly.
Instead, it seems they have become nothing short of self-appointed saviours of humanity and the planet. Former governor of the Bank of England Mervyn King recently complained about central banks “moving into the political arena”, and with good reason. The Bank for International Settlements shows that references to “inequality” in central bank statements have risen exponentially.
Draghi’s successor at the ECB, Christine Lagarde, has been equally explicit on the role of central banks in saving the planet Her response to whether the ECB dealing with climate change is not mission creep is simply that it is “acknowledging reality”. Indeed, goes the argument, could the end result of climate change not in some way be inflationary?
Perhaps, but then perhaps not – and where does one draw the line? If supply chain bottlenecks are inflationary, then should the ECB not start by leasing container ships and freeing vessels stuck in the Suez Canal?
There are many reasons why this mission creep is a mistake. First, there are other actors who need to address these problems facing humanity, specifically democratically elected ones. It may be that climate change is disastrous, but surely dealing with it is none of a central banker’s business?
Second, such dabbling creates clear conflicts of interest. Take the effects of quantitative easing; while buying green bonds and those of renewable energy companies may help finance a green transition, it also artificially inflates asset values.
Finally, this is quite simply none of their business, and may have dangerous side effects. At Harvard, Draghi answered the question in a typically direct yet wry manner.
“Central banks”, he stated, “are very powerful. An example of this power is when I said in June 2012, somewhat off the cuff, that I would do ‘whatever it takes, within our mandate, to preserve the euro’.”
Pausing, he then stressed the importance of the words “within our mandate”. Central banks should only act within the confines of that very specific, democratically legislated, framework. Further to this, a central bank is only powerful if it continues to act within its mandate, as this is the single way it can remain credible.
In the essentially technocratic world of central banking, democratic legitimacy, institutional credibility and policy effectiveness are all deeply intertwined. The mission creep of experts, particularly those at central banks, therefore risks nothing less than endangering the authority of the entire edifice on which their influence rests.
Maybe, therefore, central banks should surrender their ambitions of saving all humanity and the planet, and focus on the immediate job at hand. While it might make their jobs a little less colourful, it might make it easier for everyone else, all round. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.