Through their policies, central banks exert considerable influence on the socio-economic conditions of a country and its trading environment. Their decisions are so powerful that it is obvious that they are part of the government. But most people would be surprised to learn that central banks are almost never part of the democratic process that imposes itself.
Read also: Mario Draghi leaves the European Central Bank without ever raising his interest rates
Bankers supervise bankers in the United States
Modern democratic societies are in crisis for various reasons, and one of them is that very little depends on the will of the people. When was the last time someone asked you if you agree to see your savings run out because of low interest rates or if someone has already got your permission to save financial institutions? bankrupt with your money? These are actually some of the main reasons why decentralized crypto-currencies allowing for peer-to-peer transactions have been invented.
On paper at least, there is a mechanism in representative democracies that allegedly takes into account your interests. You vote for a political representative who must take your point of view into account in the decision-making process at the highest levels. But if you are successful with elected officials and institutions, it is almost impossible with central banks because of their independence.
Take the US Federal Reserve, for example, the largest of all central banks in a dollar-dominated world. The Fed was created by a group of bankers and politicians who developed the plan for its settlement outside Washington, which was later approved by Congress. The Federal Reserve system is a network of 12 regional banks of the Federal Reserve governed by a seven-member board appointed by the President of the United States and confirmed by the Senate. But there is a problem: the elected head of state can appoint only one member of the Board of Governors every two years for a 14-year term, while the 12 branches are effectively controlled by commercial banks.
Each regional reserve bank is in fact a corporation and each US chartered bank is required to retain 6% of its capital with its regional reserve bank. For this, he receives an amount of shares at a fixed price of $ 100 per share and these can not be sold or exchanged. Their holders, the commercial banks, control about two-thirds of the voting power of the boards of regional reserve banks. The larger the bank, the greater its share in the regional Fed, which is supposed to oversee its operations and operations.
The Federal Reserve was structured in this way to ensure the independence of the central bank from Washington. But in a representative democracy, this also makes it independent of the electorate, the taxpayers. The population has more than one option to exert influence on its central bank: buy as many stocks as possible from the largest commercial banks in their area. The Fed itself has been accused of exerting political influence and absorbing the influence of Wall Street. Increasing or reducing interest rates at the "right time" can tip the balance of the economy and affect the perception of the current state by voters. The instruments available to the Federal Reserve can stimulate economic recovery or create a false impression in this way by inflating bubbles or even slowing the ongoing recovery. To use them, he does not need political capital, unlike an elected institution, and he will not pay a political price in the next election.
Informal group determines banking policies in the EU
If you thought the situation in Europe was radically different, you were wrong. The European Central Bank (ECB) is responsible for monetary policy in the euro area and, together with the central banks of the countries in the common currency area, forms the so-called Eurosystem. But if the Frankfurt-based ECB is officially entrusted with serious regulatory powers, particularly with regard to the adjustment of key rates, many would be surprised to learn that its decisions are often dictated by an informal forum that has been strongly criticized for its lack of transparency. In reality, the political control of the euro and the EU's Economic and Monetary Union is exercised by the Eurogroup.
The term Eurogroup refers to the meetings of the finance ministers of the countries of the euro area. It derives its legality from two short articles in Protocol 14 of the Consolidated Treaties of the European Union, recently added to the Lisbon Treaty. The first begins with "Ministers of the Member States whose currency is the euro meet informally". They must "discuss issues related to the specific responsibilities they share with regard to the single currency". The discussions are taking place with the participation of the European Commission and the European Central Bank. But that's not all. Senior officials of the International Monetary Fund, such as its Managing Director, Christine Lagarde, and an elected President of the ECB, are sometimes invited to these meetings. In other words, the European troika, to which the IMF is also a member, is well represented.
The largely informal nature of the Eurogroup has caused much criticism within the European Union, mainly because of the lack of democratic scrutiny of its work. Critics pointed out that the Eurogroup did not publish minutes of its meetings or documents revealing its agenda. Some spoke of the lack of accountability to the European Parliament, which remains the only democratically elected European institution, as well as the dominant position of the Troika and countries like Germany in this format. Meeting participants indicated that decisions taken by the Eurogroup were often simply endorsed by the Economic and Financial Affairs Council (Ecofin), the group bringing together the ministers of the economy and finance of the 28 Member States. Member States, before being directly implemented by the European Central Bank.
Do you think that central banks should be more accountable to citizens and elected institutions of a country? Share your thoughts on the subject in the comments section below.
Disclaimer: This article is an opinion piece. The opinions expressed in this article are those of the author. Bitcoin.com is not responsible for the content, accuracy or quality contained in the article. Readers should exercise due diligence before taking any action related to the content. Bitcoin.com is not liable, directly or indirectly, for any damage or loss caused or alleged to have been caused by or in connection with the use of or reliance upon the information contained in this article. ;opinion.
Images courtesy of Shutterstock.
Did you know that you can buy and sell BCH privately using our local non-depository Bitcoin Cash trading platform? The Local.Bitcoin.com market currently has thousands of participants from around the world negotiating with BCH. And if you need a Bitcoin wallet to store your coins securely, you can download one here.