comment, opinion, central banks, the view, banking & finance, environment, us federal reserve, climate change, business of climate change, european central bank, quantitative easing, central bankers should work to serve the people, not the markets

Fifty years ago, a US president closed the gold window, ended capital controls, and launched a new era of globalised finance. The “Nixon shock” reshaped the international monetary system overnight, and then gradually changed the status of central bankers.

Instead of acting as servants of the domestic economy, monetary policymakers have become masters of the globalised and financialised world economy. And this development bears directly on our ability to tackle the problems of climate change and biodiversity loss.

Despite their technocratic mystique, central bankers are politically appointed public servants on government payrolls, and still derive their authority from the taxpayers in their respective jurisdictions. Central bankers’ status and constitutional role is therefore primarily a democratic question, not an economic or technical one.

As the managers of public institutions that hold a monopoly over the issuance of currencies and liquidity, they wield powerful instruments that can be deployed only because they are backed by government treasuries.

Treasuries, in turn, are backed by a country’s fiscal resources – including tax revenues – and by public institutions that are vital to the private financial sector, such as the judicial system.

comment, opinion, central banks, the view, banking & finance, environment, us federal reserve, climate change, business of climate change, european central bank, quantitative easing, central bankers should work to serve the people, not the markets

President of the European Central Bank Christine Lagarde speaks to the press in Frankfurt, Germany, on September 9. It should not be forgotten that, despite their technocratic mystique, central bankers are politically appointed public servants on government payrolls. Photo: Reuters

Despite the ideology of “free markets”, capitalism has always depended on public institutions and resources for its capital gains and profits, just as central banks have always presided over a hybrid private-public financial system.

What is new is the extent to which central bank resources (balance sheets) have been expanded and deployed in the private interests of vast, unregulated and systemically risky capital markets across the “shadow banking” system.

The Bank for International Settlements (BIS) has tallied up the value of the extraordinary fiscal, monetary and macroprudential measures that central banks have deployed in the wake up of the Covid-19 pandemic to shore up private financial markets and mitigate their adverse economic impacts. Notably, BIS economists find that central bank programmes to purchase private assets accounted for half of total purchases over this period.

As other researchers have shown, a significant share of such financial flows since 2007 have gone to support fossil fuels and other carbon-intensive sectors.

The overall sums involved here are massive. Earlier this year, the Eurosystem’s balance sheet rose to €7 trillion (US$8.2 trillion), which is more than 60 per cent of the euro zone’s GDP. The Bank of Japan’s balance sheet now stands at 130 per cent of GDP.

The Fed’s grew from US$4.3 trillion in mid-March 2020 to a peak of US$8.2 trillion in late July 2021. That is equivalent to about 40 per cent of nominal US GDP, a level not seen since World War II.

Moreover, since 2007, central bankers have used their public authority to participate in, influence and shape the vast US$52 trillion shadow banking system, where they have become private dealers of last resort, and market makers of first resort. The expansion of shadow banking follows from the 1981-2014 period, when 30 governments around the world privatised their pension funds.

As a result, a vast pool of the world’s savings flowed into asset management funds in globalised, largely unregulated capital markets. Because the sums were too large to be accommodated by commercial “Main Street” banks, the shadow banking system emerged.

comment, opinion, central banks, the view, banking & finance, environment, us federal reserve, climate change, business of climate change, european central bank, quantitative easing, central bankers should work to serve the people, not the markets

The sun shines on the Bank of America Tower in New York on September 7. A vast pool of the world’s savings has flowed into asset management funds in globalised, largely unregulated capital markets, too large to be accommodated by the commercial “Main Street” banks. Photo: Bloomberg

These earlier political decisions to financialise the global economy will pose hurdles to our efforts to tackle challenges like climate change. Given the precarious state of the biosphere, it is imperative that central banks’ activities be reoriented towards what political economist Benjamin Braun calls “public purpose”, and away from the task of sustaining private gains in capital markets.

Humanity is now facing terrifying climate and ecological threats. In fact, we are moving faster towards the point of civilisational collapse than scientists previously thought.

In research published in the Proceedings of the National Academy of Sciences in June 2020, the authors argued that “the ongoing sixth mass extinction may be the most serious environmental threat to the persistence of civilisation, because it is irreversible”.

Many, including key figures in US President Joe Biden’s administration, believe that ensuring the survival of human civilisation is a task that can be left to private capital markets. In his first press conference as the US climate envoy, John Kerry paid homage to BlackRock’s climate-conscious CEO, Larry Fink, and in effect begged Wall Street to come to the rescue of the administration’s climate plan.

The US national climate adviser, Gina McCarthy, then drove home the point: “The question won’t be whether the private sector is going to buy into it; the private sector is going to drive it.”

In the Great Depression, the face most Americans associated with the response was the democratically elected president, Franklin D. Roosevelt. Are we now supposed to look to an unelected, unaccountable fund manager – or, perhaps, to Fed chair Jerome Powell – to rescue human civilisation from collapse?

The present structure of globalised finance lends itself to precisely this undemocratic outcome. But we must resist it.

If we are going to avert both a political and a climate breakdown, we will need to transform the international monetary system so that it upholds democracy and the policy autonomy of nation-states.

That means reintroducing capital controls, reregulating global banking, renationalising pensions, and restoring political and economic power to elected assemblies – not simply to their executives and to central bankers.

To be sure, the separation of powers between central banks and politicians will have to be maintained to avoid corruption. But central bankers will need to be required, through legislation, to reorient their vast array of planning tools to the needs of democracy and the domestic economy.

Ann Pettifor, director of policy research in macroeconomics, is the author of “The Case for the Green New Deal”. Copyright: Project Syndicate

Internet Explorer Channel Network


LATEST NEWS

China's property and construction sectors contract in third quarter as Evergrande crisis and tougher regulation hit home

Why Asia's CEOs fear inflation as biggest hurdle to coronavirus recovery

Chinese investment in UK welcome despite tensions, overtures won't be ‘pitchforked away', Johnson says

Mortgage borrowers should seek professional advice before making a purchase decision

Tesla supplier CATL defends US$9.1 billion fundraising as ‘reasonable' on rosy EV outlook after Shenzhen exchange query

Evergrande: US fund unimpressed as China treats credit distress, bond defaults with kid gloves

Evergrande's debt crisis sates appetite for risk, forcing 206 plots to withdraw from China's land auctions since September

Hong Kong's property mania inflates prices of even the tiniest flats, putting affordability beyond reach for most first-time buyers

G20 countries' policies make it difficult to attract green investment needed to tackle climate change, report warns

Hong Kong stocks slip as China's economic reports dent risk appetite while tech firms struggle on regulatory concerns

China can ‘contain' economic, financial risks posed by Evergrande crisis, central bank chief says

Three tests for China stock investors as slowdown in GDP, earnings and trading divide analysts seeking signs of policy capitulation

Centralcon's Sha Tin project sees sales pick up as smaller flats attract price-sensitive end users rather than investors

Is this China's ‘Great Resignation'? Freelancers find both hope and uncertainty in bid to escape 9-to-5 grind

Effects of China's regulatory onslaught felt in Hong Kong as large IPOs fall by the wayside

Investors in two-thirds of companies listed globally risk losing US$8.4 trillion because of declining ocean health: WWF

NEWS RELATED

Evergrande: concerns linger even as embattled developer's Hengda unit makes interest payment on US$327 million onshore bond

China Evergrande Group made its first interest payment on its corporate bonds in nearly a month on Tuesday as questions continue to swirl about its ability to service its massive pile of debt accumulated from years of aggressive expansion beyond its core property business, according to people familiar with the…

Read more: Evergrande: concerns linger even as embattled developer's Hengda unit makes interest payment on US$327 million onshore bond

Wealth Management Connect makes positive start as customers rush to open accounts, invest on both sides of the border

The Wealth Management Connect, the new cross-border scheme for the Greater Bay Area, made a solid debut on Tuesday, with most banks indicating strong demand for their investment products in the mainland and Hong Kong, according to bankers. HSBC, Standard Chartered, Bank of China (Hong Kong) (BOCHK) and 10 other…

Read more: Wealth Management Connect makes positive start as customers rush to open accounts, invest on both sides of the border

FWD Group's IPO hits potential roadblock as US regulator asks questions about Beijing's hold over Hong Kong companies, sources say

FWD Group’s initial public offering has hit a potential regulatory roadblock as the Hong Kong-based insurer backed by tycoon Richard Li Tzar-kai seeks to raise as much as US$3 billion in the United States, according to people familiar with the matter. The insurer has yet to receive final approval from…

Read more: FWD Group's IPO hits potential roadblock as US regulator asks questions about Beijing's hold over Hong Kong companies, sources say

Bowtie raises US$22.6 million from Mitsui-led investors, tapping Japanese firm's financial muscles and strategic advice for growth

Bowtie Life Insurance, Hong Kong’s first virtual insurer, said it raised US$22.6 million in its second funding round from a group of investors led by Mitsui & Co., getting both the financial backing and strategic advice of one of Japan’s largest conglomerates to steer its growth. Mitsui invested in Bowtie’s…

Read more: Bowtie raises US$22.6 million from Mitsui-led investors, tapping Japanese firm's financial muscles and strategic advice for growth

HSBC, Standard Chartered, Bank of China (HK) among 19 lenders approved to sell Wealth Management Connect products

HSBC, Standard Chartered, Bank of China (Hong Kong) – the city’s three note-issuing banks – are among the 19 Hong Kong lenders that received the greenlight to sell investment products under the Wealth Management Connect scheme in the Greater Bay Area from Tuesday. The Hong Kong Monetary Authority on Monday…

Read more: HSBC, Standard Chartered, Bank of China (HK) among 19 lenders approved to sell Wealth Management Connect products

Hong Kong's Exchange Fund reports US$1.7 billion third-quarter loss as Beijing's big tech crackdown batters stock market

Hong Kong’s Exchange Fund, a war chest used to defend the local currency, lost HK$13.2 billion (US1.7 billion) in the third quarter as it fell victim to a slump in the local stock market. The loss in the July-to-September period compares with a gain of HK$81.2 billion a year earlier.…

Read more: Hong Kong's Exchange Fund reports US$1.7 billion third-quarter loss as Beijing's big tech crackdown batters stock market

How new blockchain, cryptocurrency rules can give Hong Kong an investment edge

Change is coming for Hong Kong’s digital asset markets with the Legislative Council likely to consider new regulation governing blockchain and cryptocurrencies soon. The momentum has been building for five years through the publication of white papers and statements from the Monetary Authority, Financial Services and Treasury Bureau, and Securities…

Read more: How new blockchain, cryptocurrency rules can give Hong Kong an investment edge

Hong Kong-listed ETFs expected to benefit from Greater Bay Area growth, upcoming connect scheme

Exchange-traded funds in Hong Kong are expected to see strong growth because of the development potential of the Greater Bay Area, growing interest among investors and a new cross-border trading scheme in the works for ETFs, according to industry players. Seoul-headquartered Mirae Asset Global Investments, the largest ETF issuer in…

Read more: Hong Kong-listed ETFs expected to benefit from Greater Bay Area growth, upcoming connect scheme

Women from Philippines, Hong Kong and China account for higher than global average when it comes to investing in stock markets

China's electric car start-ups turn to private equity, venture capital for funds as they are turned away from Shanghai's Star Market

Hong Kong court slaps jail time on four people over plot to defraud Convoy, in a win for city's anti-corruption investigator

China Evergrande crisis caused by ‘poor management', but an exception in healthy property market, central bank says

Estonia joins global regulators in tightening the noose on digital tokens, weighing firmer oversight of cryptocurrency trading

Pulled IPOs at Lenovo, Geely Auto test Shanghai Star Market's ‘hard technology' listing criteria

Explainer: As Hong Kong explores how e-HKD can be used for shopping and dining in the city, here are some key facts on how digital currencies work

Federal Reserve officials expected taper to start next month with the process concluding in mid-2022, minutes show

OTHER NEWS