Central bankers can’t save the planet – nor should they be mandated to do so

ALL attention this week will be on a swathe of major central bank decisions, with the United States Federal Reserve’s first rate announcement of the year due on Wednesday (Feb 1), followed by the Bank of England and the European Central Bank (ECB) on Thursday.

As the week’s policy statements are likely to underscore, the number one priority of central banks remains to get the inflation genie back in the bottle. But beyond price stability, should they be doing more to tackle the issues of the day? If central banks have roles to play in solving challenges like debt sustainability and climate change, shouldn’t they be mandated to do so?

This isn’t just theorising. Central bank independence, a cornerstone of monetary policy for the past thirty years, has come under fire on several fronts. Most obviously, successive rounds of quantitative easing in the wake of the global financial crisis and then the pandemic have blurred the lines between fiscal and monetary policy – and therefore governments and central banks.