The institutions of the people, by the people and for the people? Addressing central banks’ power and social responsibility in a democracy

Abstract

This paper sheds light on an overlooked issue in economics, namely the social responsibility of central banks in a democracy. We consider central banks as institutions of power, and, as such, neither are they nor their policies neutral, in the sense that there are inevitable winners and losers. In this context, we explain why and how their power should be regulated and controlled by society. Specifically, we focus on the income distributive nature of monetary policy to demonstrate this assertion. From this, we explain that the time is ripe to build a new framework for central banking aiming at improving central banks’ social responsibility consistent with the spirit of a democratic system, and resting on new rules, new types of inner organization and, more broadly, an ethics of responsibility of a new kind. JEL codes: B55, E02, E12, E52, E58

Keywords

• central banks
• central bankers
• power
• social responsibility
• democracy