The Paradox of an Independent Central Bank

The idea that a central bank can be in itself independent of general governmental projects, while seen in modern economics as a facet of developed economies, is actually a complete misnomer. For when you have an entity that controls monetary policy, not at the whim of markets or prices, but at what certain economists and bankers see as occurring within these markets and prices, then you have an entity which in and of itself is a facet of big government, for anything to be truly independent of government, it must have its basis in either economics or traditional social norms (i.e. family or social institutions).

The concept of an independent central bank is in fact rather paradoxical, as it is set on the premise that because our elected officials have no say in the setting of monetary policy, it must be an independent institution. This can be seen as the pragmatic argument in favour of such a concept. However, the fact that it is setting interest rates at what sees as the market value, instead of simply allowing interest rates to be set by genuine market values, says to me that it is still a part of the neoliberal, governmental complex that has its fingers in many economic pies. In fact, the central bank has become the centre for the corporatist economic world that we currently live in. Its existence as lender of last resort via deposit insurance and the backing of fractional reserves, as well as its setting of the value of money (i.e. interest rates) means that it has become another arm of big government regulation that ignores the free market and instead does what it likes at an arbitrary whim.

This can be seen most recently in the Great Recession of 2008, where interest rates were maintained at near-zero so as continue to pump demand into the economy via more loans, mortgages and investments, which it certainly did. However, the demand stripped supply, meaning that many of these loans and investments were worthless, as was seen when people were being evicted from their homes and runs were being done on banks. This could further be seen in the bank bailouts that weren’t government loans or nationalisation, but were instead quantitative easing-based injections, that instead of letting banks fail rather injected them with credit and capital. This was done at the expense of significantly weaker currency and a continuation of unaffordable inflation.

This type of influence on the economy cannot be the work of a truly independent body. Instead, the central bank is another arm of neoliberal big government that continues to pick winners and losers in the market and set monetary policy on a whim. It’s complete ignorance of the market as well as its stranglehold on currency suggests that it can only be part of our modern, undemocratic, bureaucratised governments, because if it were in the market, such an inefficient institution wouldn’t have lasted long. In the end, the central bank is independent in name only.

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