Forum Summary--Central Banks and International Governance

What follows is a summary of the Meridian 180 forum "Central Banks and International Governance" (January-February 2013).

By Eudes Lopes

This forum invited Meridian members to engage with one of the most salient questions of the current moment: “What is the way forward for central banks in an increasingly interconnected world?” The online discussion was launched as a prelude to a live one, which took place at the New York City symposium, “The Changing Politics of Central Banks,” co-organized in 2013 by Meridian-180 and the Cornell International Law Journal.

Fleur Johns immediately set the tone for this imaginative discussion. She began with a provocation: “One element that struck me, among the questions put forward to begin this discussion, is a concern with imbalance. This, in turn, brings to mind the role that central banks seem increasingly to be playing in what might be termed global mood management.” Johns suggested, as an opening gesture, that further intellectual experimentation with a new analytical register, such as that of mood or virtue, might stand to serve as an alternative perspective for understanding how central bankers respond to unexpected developments in the increasingly uneven global financial system.

This reframing resonated with contributors to this forum given its attentiveness to both the international scope of central bank action and its inseparability from distinctively national traditions. Annelise Riles, for instance, drew attention to the relevance of mood management in the case of the Bank of Japan, which, at the time of her writing, had initiated an important new monetary stimulus plan as a result of intense political pressure from a new national government. Riles argued that since the global financial crisis, what has been lost in mainstream critiques of exclusive international technocratic elites is the not unsubstantial discord among regulators, whom, according to Riles, are also bound to national interests. “Central bankers may enjoy one another’s company at international conferences,” Riles wrote, “but that does not mean they will stick by one another or defer to one another in crisis situations. The national asset grab by regulators after the Lehman collapse taught us this, and the rise of implicit or explicit currency wars is further evidence of the same. Regulatory nationalism is alive and well as other kinds of nationalism.”

Building on the critique of coordination, Katharina Pistor emphasized that central banks are far from equal in the international financial system, and that indeed, only a few are powerful enough to offer the backstopping function that is now a signature marker of their very institutional identity and relevance. “The financial system we have created or allowed to develop—one that is highly instable and thus hugely dependent on the backstopping function only central banks of powerful states can provide—has forced central banks to take on tasks they were reluctant to perform: they have evolved from lenders to dealers of last resort in the last crisis.” Critically, only central banks who control their own currency and have to backstop debt issued in that currency are capable to do so effectively. These central banks occupy the apex of the global financial system and they have proven adapt a coordinating. Others are at their mercy when they run out of foreign currencies needed to backstop their system.

Douglas Holmes argues further that the very efficacy of the international coordination of monetary policy does not depend merely on the will power of individual central banks. Looking back on the financial crisis, Holmes concluded, “central bankers are, of course, within the financial system, but the constituencies with whom they must collaborate to keep it functioning—business people, executives of banks, hedge funds, insurance companies, real estate firms, and rating agencies along with various distinguished academics—have failed if not betrayed them.” This lack of consensus among the diverse stakeholders that render monetary policy efficacious, he suggests, has ultimately given lie to the myth of coordination.

But leaving the futility of coordination to one side, Hirokazu Miyazki suggested that even the national legitimacy of central banks has been subject to increased politicized critique in the current moment. In reference to the rise of Abenomics, for example, he argued, “what is at stake in the Japanese debate about the independence of the Bank of Japan is not so much the question of whether the Bank of Japan should have more or less power in the management of the economy, as whether Prime Minister Abe’s and his economic advisers’ determination to use the Bank of Japan’s tools of market governance to achieve the economic policy goals adheres to the principles of democracy.” Indeed, while Abenomics might be a classic case of the political usurpation of central banking for privileged purposes, it might also be suggestive of the emergence of a new political and electoral constituency, aligned with the executive branch, to which central banks must now be responsive to sustain their legitimacy.

Taken together, the comments of this forum discussion shed critical light on the limits and contradictions of the current legal and conceptual frameworks that define what central banks purport to be accountable for in the context of great ongoing instability and uncertainty in the global financial markets.