Fed rate decision highlights the need for a global central bank

BY ACKNOWLEDGING that the US Federal Reserve took account of the fragile state of the global economy in not raising US interest rates last week, Fed chair Janet Yellen acted like the head of a global central bank. Prudent, you might say, in the circumstances but a dangerous precedent to set nevertheless.

The Fed obviously is not a global central bank and in trying to behave as though it were one it risks neglecting the monetary welfare of the nation it serves - the United States - while at the same time creating a comfortable fiction that someone is in charge of global monetary affairs.

Central banks are answerable to domestic constituencies and have domestic policy objectives. They have no legal authority or democratic remit to intervene in global monetary affairs and once they start doing so that is likely to create tensions that undermine or destroy credibility.