Insulated from popular discontent, independent central banks have free reign to undermine workers’ rights and further the neoliberal agenda, argues John Clarke

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), recently offered up a blog post on the need to ‘strengthen central bank independence to protect the world economy.’ In it, she nervously urges the preservation of this key neoliberal strategy in the face of economic instability and the threat of political pressure.

Georgieva is bothered that:

‘…central bankers today face many challenges to their independence. Calls are growing for interest-rate cuts, even if premature, and are likely to intensify as half the world’s population votes this year. Risks of political interference in banks’ decision making and personnel appointments are rising. Governments and central bankers must resist these pressures.’

It is presumably with complete seriousness that Georgieva urges her readers to ‘consider what independent central banks have achieved in recent years.’ She goes on to set out a list of everything central banks have done to maintain a level of stability for global capitalism which, as far as she is concerned, is synonymous with the wellbeing of working-class populations.

Monetary policy

According to Georgieva, during the pandemic, central bankers ensured an ‘aggressive monetary easing that helped prevent a global financial meltdown and speed recovery.’ However, as ‘the focus shifted to restoring price stability, central bankers appropriately tightened monetary policy—albeit on different timelines. Their response helped to keep inflation expectations anchored in most countries even as price increases reached multi-decade highs.’

Based on the questionable assumption that interest-rate policies have calmed inflation and brought it under control, Georgieva goes on to assert that ‘their success thus far has largely been because of the independence and credibility that many central banks have built up in recent decades.’ She even suggests that the relatively short-lived nature of runaway inflation in the recent period, as opposed to the more severe experience of the 1970s, is attributable to central bank independence.

Georgieva is anxious to dispel any confused ideas that independence might be taken to mean a lack of accountability. She grandly pronounces that ‘to wield enormous power in democratic societies, trust is key. Central banks must earn that trust every day—through strong governance, transparency, and accountability, and delivering on core responsibilities.’

At the heart of this earned trust is ensuring that ‘monetary policy is predictable and based on achieving mandated long-term goals, rather than short-term political gains. It starts with a clear legislative mandate that sets price stability as the main objective.’ She warns any weak sentimentalists who might put employment ‘on the same pedestal’ as price stability that they will only fail in their aim if they dare to interfere with the vital work of the central bankers.

Elected governments should stay out of the way of their central banks, and avoid being so fiscally reckless that effective monetary policy becomes more difficult. ‘When central banks and governments each play their roles, we have seen better control of inflation, better outcomes in growth and employment, and lower financial stability risks.’

Far from simply throwing in comments from the sidelines, however, the ‘IMF is here to help policymakers face these challenges.’ The agency can offer ‘technical assistance to members working to improve governance and legal frameworks’ and is always ready to ‘make independence an explicit pillar in some Fund-supported financing programs, agreeing with members on actions to measure and achieve it.’

Georgieva concludes her message with an appeal to ‘preserve and strengthen central banks to win the fight against inflation today and foster economic stability and growth for years to come’ because ‘this will benefit everyone.’ In this situation, with ‘such high stakes, we must preserve and strengthen central bank independence.’

American post-Keynesian economist Thomas Palley has argued that ‘central bank independence is a product of neoliberal economics and aims to advance and institutionalize neoliberal interests.’ The major shift towards it ‘occurred in the late 1980s and 1990s, a period which witnessed the cementing of neoliberal political and economic hegemony.’

Palley suggests that ‘central bank independence can be thought as a quasi-outsourcing of interest-rate policy.’ As such, ‘it sides with the economic interests of capital against those of labor.’ Its effectiveness as a strategy is to create the illusion that monetary policy is a purely technical matter that elected governments should leave to technocrats. While governments can and do play their own major role in imposing austerity agendas, the unaccountable central bank is insulated from popular discontent and political pressure and, as such, is an effective means of imposing class-war policies.

The dogged insistence by the IMF and the central banks that the interest rate increases of the last period have been prudent measures that have successfully curbed inflation, the nature of the sudden price instability calls this into question, as noted by a range of commentators. Writing in UnHerd, Thomas Fazi addresses the Bank of England specifically, pointing out that ‘officially, the Bank’s actions are aimed at curbing inflation. But this approach would only make sense if the current inflation were being driven by excess demand.’

It has been well established that price rises were driven by ‘supply shocks’ following the pandemic and that this was compounded by opportunistic profiteering in some commodity sectors. All talk of a ‘wage-price spiral’ was simply not rooted in any honest assessment of the situation. In reality, the actions of the central banks very deliberately sought to weaken the capacity of workers to compensate for a decline in real wages.

The response of the central banks to the cost-of-living crisis can more accurately be viewed as a pre-emptive strike. Inflationary pressure did indeed prompt rising levels of working-class militancy in a number of countries. The fear of the central bankers and the class whose interests they represent was that this trend might reach levels that could threaten the greatly strengthened position they had achieved during the neoliberal decades. The whole central bank offensive, then, was primarily driven by a desire to undermine ‘a potential rise in labour bargaining power.’

Agile class war

It is highly significant that the IMF’s Managing Director weighs in on the question of central bank independence at this juncture. It is part of the Fund’s focus on ‘refining and adapting the institution’s core activities to support member countries as they face challenges posed by ongoing transitions in the global economy.’

Georgieva and her colleagues are well aware that global capitalism is far less stable than it was in the period before the financial crisis of 2008. In this situation, the IMF plays a leading role in developing a class-war strategy based on ‘agility, integration, and member focus.’ This would allow for a major effort to suppress wages, impose austerity and boost profitability, while keeping a close eye on economic danger signals so as make abrupt turns towards temporary or localised stimulatory measures in order to avert uncontrolled crises.

In this regard, the independent central bank, as a key achievement of the neoliberal decades, is an indispensable tool. Significantly walled off from political pressure and linked closely to financial capital, the central bank has a particularly important and ruthless role to play.

Working-class people across the world, however, are unlikely to be convinced by the IMF’s insistence that this harsh medicine is being forced upon them in the common interest. Georgieva’s goals of stability and growth will mean reduced living standards and intensified exploitation. However, this may in turn reveal that the independent central banks are simply not insulated enough to escape the anger and resistance that their measures unleash.