Paper proposal
Camila Villard Duran
Assistant professor of Law at the University of São Paulo (USP, Brazil)
Oxford-Princeton Global Leaders Fellow, Woodrow Wilson School, Princeton University
Provisional title
“Political autonomy and social accountability: the evolving role of law in
monetary policy and the public evaluation of central bank actions”
Abstract
Central banks are not conventionally supposed to be accountable to society, but
mainly to political powers of their countries or regions. Yet, in the last three decades,
the most important institutional change for central banks was to attribute political
autonomy over the monetary policy implementation as well as to establish
mechanisms of “operational transparency”. The main or exclusive goal of monetary
stability was the third main characteristic of this movement.
Traditionally, accountability mechanisms were designed by law to assure that the
management of money could be assessed by the Legislative and the Executive
powers. In recent decades, central bank regulations or statements related to
operational transparency1 were also set up, though focused on market communication
and the efficiency of monetary policy implementation. Yet it established a real
institutional framework for potential greater social accountability. These “soft”
instruments complemented the legal structure for monetary policy accountability in
normal times.
The financial crisis of 2008, however, challenged this institutional design. If it was
already difficult for citizens or political actors to assess central bank decisions
through legal instruments related to operational transparency (soft or hard law in
nature), what could be said about the balance-sheet policies and quantitative easing?
In times of crisis, how to assess losers and winners of central bank decisions in
monetary policy? In democratic and global integrated societies, how to supervise and
evaluate complex public actions taken by monetary authorities?
This paper argues that the role of law in the public policy-making, notably in
monetary policy, is changing: from (i) ex ante legal controls of public policy (precise
definition of instruments and quantitative limits to central bank actions)2 towards (ii)
an ex post form of supervision, i.e. mainly accountability mechanisms (definition of
targets and goals combined with instruments of evaluation and possibly judicial or
other types of sanctions).
This change was already noticed in modern monetary policy, but this trend tends to be
reinforced after 2008 crisis in a more complex financial environment. A return to the
This type of accountability mechanism has emerged as soft law, outside of the battles in the
political arena, and has gone unnoticed in the economic literature, which refers to them only as
only mechanisms of “operational transparency”.
2 E.g. a ceiling for reserve requirements or a precise limit for the issuance of paper money defined by
law.
1
ex ante models of control is impossible in an even more complex market-based credit
system. Also, if the challenges of accountability were already important, they are
bigger in this new economic scenario.
These challenges call for the re-imagination of accountability mechanisms in
monetary policy. This is also a way to re-legitimate central bank actions. Thus how to
improve the role of law in central bank accountability? I identify in Europe a relevant
potential role for two institutions: the European Ombudsman and the Court of Justice.
However, as I will demonstrate in this paper, they are still not up to the task.