Central bankers must “screech from the rooftops that they are not producers of prosperity” as soon as the economies they supervise recover, said Sir Paul Tucker, the former deputy governor of the Bank of England, at the Global Financial Markets Forum in Abu Dhabi yesterday.
Politicians are in danger of growing dependent on central banks to deliver growth, despite clear evidence that monetary policy “cannot produce growth over the medium or long term”, Sir Paul said.
“There is a real risk in the world at the moment that the world will slip back into thinking that [central banks] are generators of growth – no, they are not,” said Sir Paul. The mandate of any central bank is clear, he said: “It’s stability, stability, stability.”
Central banks “can provide a platform of stability” that allows a market economy to allocate resources.
But only “investment and effective education” can deliver growth in the long run, he said.
The central banks of the US, the UK, the euro zone and Japan have all introduced unorthodox monetary policies, including massive purchases of sovereign debt, in a bid to avert global depression following the 2008 financial crisis.
“We have avoided a repeat of the Great Depression – and that is quite an achievement,” Sir Paul said. “But it’s not enough.”
Since the crisis, central banks have also introduced “macroprudential regimes” – new regulatory powers over key sectors of the economy.
The Bank of England established a financial policy committee in the wake of the 2008 crash that exercises supervisory powers over the country’s banks. The EU introduced the single supervisory mechanism”in 2013, which grants the European Central Bank new powers to monitor the continent’s financial sector.
Sir Paul said policymakers need to be clear-eyed about how these new powers for central bank governors will affect the way economies are run.
“If [central bank] governors have more flexibility – let’s be clear, that means they have more power,” he said.
“We do need to have [macroprudential regimes] … governors do need to have more power. But that power needs to be boxed.”
“Policymakers should ask: why have they got [specific powers], and what [are they] for? Rather than saying: ‘Hey, you seem to be good at what you do, you need to do everything for us’.”
And investors across the world “will have to get used to asking tough questions about macroprudential regimes in the same way that they have got used to asking tough questions about monetary policy”, Sir Paul said.
abouyamourn@thenational.ae
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