Great Power, Great Responsibility: Addressing the Underestimated Issue of Central Bank’s Social Responsibility

Abstract

This paper deals with the neglected issue of central banks’ social responsibility. Since central banks exert the “structural power” on economies as well as on societies, their power should be regulated and controlled by society through a reliable framework of social responsibility. To that aim, this article sheds light on the ‘why’ and the ‘how’ of central bank’s social responsibility: I suggest reforms in order to increase central banks’ social legitimacy, while being consistent with the mapping out of a new framework of social responsibility.

Green Finance: Regulation and Instruments1

“…In addition to government involvement, the role of central banks and financial regulators is important, as they can make a significant contribution to the development of green finance. Vallet (2020) stresses that climate change changes shocks on both the supply side and the demand side, thus affecting price formation and, consequently, changing the distributive effects of monetary policy. Volz (2017) points to the following arguments when engaging central banks in addressing environmental and sustainability challenges: (1) the market failure argument -a situation where commercial banks can grant loans for socially undesirable activities (for instance lending to companies that use carbon-intensive or polluting businesses); (2) macroeconomic and financial risk -climate consequences can straight affect the price of food and energy and thus directly affect the accomplishment of the main objectives of central banks, which are to achieve and maintain price and financial stability, and (3) the role of the central bank as a credible institution -central bank expertise in financial markets can promote best practice in the financial system.…”

Reputation Lasts Longer Than Life: How can Central Banks Quantify their Reputational Risk?

“…Central bankers are often accused not to serve the people but their own interests and certain groups, thus violating rule of being preserved from capture. Further, they posit, as the central banks are custodian of structural power on economies and societies, they shall map out a new framework of social responsibility as well (Vallet, 2021). Further, communication is also a factor that may cause risk of reputation for central bank.…”

Adoption of Cloud Services in Central Banks: Hindering Factors and the Recommendations for Way Forward

“…Further, utilize a dynamic panel model to see if increased bank rivalry hurts commercial banks' financial stability in India over the period of 1996 to 2016. The overlooked problem of central banks' social responsibility is addressed in the study by Vallet (2021), indicating that because central banks have "structural power" over economies and societies, their authority should be managed and controlled by society through a dependable social responsibility framework.…”