36 - Central Banks

Summary

This chapter provides an overview of the state of the art in constitutional and political theory with regard to the topic of central banks. Central banking, I show, is a highly political domain of policy making that raises thorny and under explored normative questions. I challenge accounts of central banking as involving limited discretion and distributional choices in the pursuit of low inflation, as well as the narrow range of normative questions that such accounts raise. I then ask what to make of central bankers’ political power from a normative perspective. As I argue, some delegation of important decisions to unelected officials is almost unavoidable, often desirable and by itself not undemocratic. I conclude by explaining that we should nonetheless be reluctant to allow for extensive central bank discretion by highlighting six crucial issues that are currently not sufficiently understood: the central bank’s actual level of autonomy from governments, the effectiveness of accountability mechanisms, the effects of depoliticizing money on the broader political system, the effects of democratic insulation on the effectiveness of central banks, the specific practices of deliberation within central banks and the scope for coordination with elected government.