Debating Central Bank Mandates

by Adam Tooze


5. JANUARY 2022

Central banks are in the crosshairs of public debate about economic policy. Every minute of every day, interest rate decisions are debated and weighed in financial markets. The risks of inflation are assessed. Trillions of dollars hinge on correctly interpreting the next move by key central bankers. Central bank appointments are avidly discussed. Public campaigns are waged for and against particular candidates. This makes guardians of central bank independence nervous. Too much public scrutiny might put that independence at risk. But it should not be surprising that people want to debate the role of central banks. It is not because they are failing. It is because they have such massive effects. Furthermore, what is provocative is not just the scale of their interventions but the things that they are doing. Their role has visibly shifted. It is hard to claim that the status quo is set in tablets of stone, when the actual experience of recent decades is that what central banks do is very much a response to circumstances. Why then should we not go back to basics and ask fundamental questions about their mandate and their role?



More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.