During the coronavirus pandemic (as during the Global Financial Crisis), central banks were instrumental in stabilizing the economy via highly expansive monetary policy. Arguably, central banks were at least as important as governments for overcoming the economic crisis. The range of their tasks and instruments has become broader than ever before in history. This raises crucial questions about the future of central bank independence. Can we continue considering central banks as neutral, technocratic institutions or do we need more democratic accountability via a stronger involvement of parliaments in monetary policy?

Monetary policy in different national growth models

The alternative options of central banks as technocratic or political (and therefore to be guided by parliaments) is closely linked to the preferences with regard to the direction of monetary policy. A conservative monetary policy prefers independent and technocratic central banks with a narrow mandate on the fight against inflation, a heterodox monetary policy gives central banks a whole range of targets, thereby increasing the need for democratic control, in order to adjucate between different targets. These preferences vary both between countries and over time.

Countries with different growth models have different preferences with regard to monetary policy (Vermeiren, 2021: 86–9): export-oriented growth models such as the German one clearly prefer a very strict (‘conservative’) central bank that focuses on keeping inflation rates very low. A low inflation rate helps in price-based export competition. Even in the case of an economic crisis, this central bank would not lower interest rates in order to stimulate the economy, given that export-led growth models seek additional demands from foreign, not domestic, markets. Domestic demand-led growth models, as for example in the US, the UK, France and the Mediterranean, in contrast, favour a much more expansive (‘heterodox’) central bank that fights recessions and unemployment via interest rate cuts or the utilization of even more heterodox instruments (to be discussed later). In the Global South, a third ‘developmental’ perspective on central banks with a focus on extensive administrative instruments to control banking can be found (Krampf, 2013). Some economies in the Global South also suffer from ‘monetary dependency’; that is, they are unable to pursue an independent monetary policy (Koddenbrock and Sylla, 2019).