Win back central banks
By serving private capital markets rather than citizens and taxpayers, central banks are a major obstacle to meaningful climate action. Half a century after US President Richard Nixon and his advisers reshaped the international monetary system, now we must transform it again
Anne Pettifor. Illustration: SCT
Anne Pettifor. Illustration: SCT
The overall sums at stake here are enormous. Earlier this year, the Eurosystem’s balance sheet exceeded € 7 trillion ($ 8.3 trillion), or more than 60% of the euro area’s GDP. The Bank of Japan’s balance sheet now stands at 130% of GDP. The Fed went from $ 4.3 trillion in mid-March 2020 to a peak of $ 8.2 trillion at the end of July 2021. This equates to about 40% of nominal US GDP, a level not seen since. the Second World War.
Additionally, since 2007 central bankers have used their public authority to participate in, influence and shape the vast $ 52 trillion shadow banking system, where they have become private brokers of last resort and market makers of first resort. . The expansion of shadow banking follows the period 1981-2014, when 30 governments around the world decided to privatize their pension funds. As a result, a large pool of global savings has flocked to asset management funds in globalized and largely unregulated capital markets. Because the sums were too large to be supported by the “main street” commercial banks, the shadow banking system emerged
These earlier political decisions to financialize the global economy are still relevant today and will constitute obstacles to our efforts to address broader societal challenges such as climate change. Given the precarious state of the biosphere, it is imperative that the activities of central banks be reoriented towards what Braun calls “the public objective”, and away from the task of supporting private gains in capital markets.
Humanity is now facing terrifying climatic and ecological threats. While it is still possible to reduce greenhouse gas emissions at the rate needed to keep global warming below 1.5 ° Celsius, biodiversity loss is already well underway. In fact, we are heading towards the point of civilization collapse faster than scientists previously thought. In research published in the Proceedings of the National Academy of Sciences in June 2020, Gerardo Ceballos, Paul R. Ehrlich and Peter H. Raven argued that “the sixth ongoing mass extinction could be the most serious environmental threat to the persistence of civilization, for it is irreversible. “(emphasis added)
Many, including key figures in the administration of US President Joe Biden, believe that ensuring the survival of human civilization is a task that can be left to private capital markets. At his first press conference as US climate envoy, John Kerry paid tribute to climate-conscious BlackRock CEO Larry Fink and pleaded with Wall Street to come to the rescue of the climate plan. administration. US National Climate Advisor Gina McCarthy then insisted: “The question will not be whether the private sector will buy into it; the private sector will lead it. “
During the Great Depression, the face most Americans associated with the response was democratically elected President Franklin D Roosevelt. Are we now supposed to look to an unelected, irresponsible fund manager – or, perhaps, Fed Chairman Jerome Powell – to save human civilization from collapse? The current structure of global finance lends itself to precisely this undemocratic outcome. But we must resist it, lest we end up with a return of fascism on top of the climate crisis.
If we are to avoid both political and climatic collapse, we will need to transform the international monetary system so that it defends democracy and the political autonomy of nation states. It means reintroducing capital controls, re-regulating the global banking system, renationalizing pensions, and restoring political and economic power to elected assemblies – not just their leaders and central bankers.
Of course, the separation of powers between central banks and politicians will have to be maintained to avoid corruption. But central bankers will need to be compelled, through legislation, to reorient their vast array of planning tools according to the needs of democracy and the national economy.
Fifty years ago, a political decision by an elected president and his advisers overnight transformed the international financial architecture. Such democratic transformations are quite possible, and another is now urgent
Anne Pettifor, Director of Macroeconomic Policy Research (PRIME), is the author of The Case for the Green New Deal.
Disclaimer: This article first appeared on Project Syndicate and is published by Special Syndication Agreement.