Hello everyone. I’m writing an honours thesis titled “Unelected and Unaccountable: Australia’s Central Bankers and the Rule of Law in Monetary Policy”. As you might guess, the argument is that there should be more accountability in central banking. The central bank is an unelected technocratic elite and serves as a tool to finance the government’s spending programs. It also helps facilitate the easy money policies and profits of commercial banks etc.
Specific accountability measures include: (1) Audit the Central Bank; (2) Change the membership or governance structure of the Board/Open Market Committee; (3) Have greater Congressional control over monetary policy (was there a time in American history when monetary policy was considered within the people’s right to judge, rather than being handed over to ‘experts’?)
Are there any others? I’m looking for other suggestions within the confines of the present system (that is, taking central banking for granted). So that probably rules out the gold standard and free banking, as these proposals go far outside the status quo.
I will state the obvious: The most accountable central bank is the one that does not exist. So the obvious question is: Why would Australia with its vast natural resources have a central bank at all? Why not back the currency with gold or silver? The Australian currency is named in the group of “Commodity Currencies” where the countries could pay for bonds with a commodity instead of the currency.
That having been said: There is no optimal solution to organize the central government and central bank. The central government wants to steal other peoples money, especially from those that do not exist or at least can not yet vote, and give it to their friends. A central banking cartel craves wealth and power and does not want competition in getting wealth and power. The tradeoff is that a legislature, especially an elected one, will just go nuts taking out loans to give to current recipients, while one that is run outside of government will simply use the money created from nothing to buy influence in the legislature. And depending on the problem at hand either one can be less bad than the other. In a situation where an insolvent bank gets bailed out, you would want the central bank run by the legislature that may have some respect for what their constitutents have to say, but in the case of hyperinflation you would not want a legislature running the central bank because they have no ability to control themselves as a legislature is the perfect example of the “Tragedy of the Commons”.
Well, there are several issues:
- A central bank, for all intents and purposes, is a separate branch of government. Like any branch of government, it should be separate and independent of other branches. This is important, because if the legislative and executive branches have exclusive control over a central bank then a monetary policy most congruent with their own policies will be implimented. This is why the U.S. Federal Reserve is a separate institution and why it is technically unconstitional (or just disallowed?) to monetize the debt (pay it off through outright inflation).
- How do you restrict a central bank and still provide it with a degree of flexibility? For example, you can restrict monetary policy to follow some nominal growth rule (increase the monetary base according to GDP growth), or some form of income targetting, which is probably much more stable than whatever rules (or discretion) they follow now.
- While stability is paramount, flexibility is important, because you may need a central bank to change a policy if something better is found. The central bank has to be able to impliment different tools. The more you constrict it, the less flexibility it has.
Ultimately, it is about trade-offs. Personally, I don’t think a central bank integrated into the legislative branch is a good idea, because it is the legislative branch that passes policy, and you don’t want to tie monetary policy with fiscal policy.
Well theh first sentence does not make sense, but the first question is the answer.
The “right” thing is not having a central bank not haveing government interfere with money. Has worked for centuries. And guess what since we have “central banks” we slide from one crisis to another. Should be food for thought…