How Central Bankers Learned to Love Financialization: The Fed, the Bank, and the Enlisting of Unfettered Markets in the Conduct of Monetary Policy

Abstract

Central banks’ role in financialization has received increasing attention in recent years. These debates have predominantly revolved around authorities’ “benign neglect” of asset bubbles, their de-regulatory policies, and the safety-nets they provide for speculative exuberance. Most analyses refer to the dominance of pro-market interests and ideas to explain these actions. The present article moves beyond these accounts by showing how an alignment between techniques of monetary governance and ‘unfettered’ financial markets can explain central banks’ endorsement of increasingly fragile structures of liquidity and their strategic ignorance towards growing amounts of debt. We analyze the processes of abstraction and formalization by which the “programmes” and “technologies” of monetary governance have been made compatible with the texture of contemporary finance; and we show how central banks’ attempts to make markets more amenable to their methods of policy implementation shaped new conduits for financial growth. As empirical cases, we discuss the Federal Reserve’s experiments with different policy frameworks in the 1980s and the Bank of England’s twisted path to inflation targeting from 1979 to 1997. These cases allow us to demonstrate that the infrastructural power of contemporary central banking is predicated on the same institutional foundations that have made financialization possible.

The quiet side of debt: public debt management in advanced economies

“…As in the case of monetary policy (e.g. Walter and Wansleben, 2020), we find that under a system of financialized debt management state and market actors are mutually dependent and tend to have shared preferences especially with respect to infrastructural issues, which enables infrastructural coordination in the quiet dwellings of informal governance spaces.…”

Financialization and Fictitious Capital: The Rise of Financial Securities as a Form of Private Property

“…Central banks have long been pursuing policies that encourage and support the financialization of domestic economies (Gabor 2010; Lapavitsas and Mendieta-Muñoz 2016; Braun and Gabor 2020). Interest rates across most developed economies have been in a downward trajectory since the mid-1980s, fueling the continuous appreciation of fictitious capital on the stock exchange (Guttman 2017; Walter and Wansleben 2020). At the same time, neoliberal reforms aimed at deregulation and liberalization of markets have led to the massive growth of international capital flows that mainly benefited financial asset holders in advanced economies (Lapavitsas 2014; Chesnais 2016).…”

Financialisation, regional economic development and the coronavirus crisis: a time for spatial monetary policy?

“…Financialisation has major implications for the entire financial sphere, including central banking, and there is a growing body of literature at the intersection of monetary theories and financialisation studies ( Figure 1 ). This body of work is extremely valuable in examining the changing role of central banking in financialisation (for example, see Braun and Gabor, 2020 ; Fontan and Larue, 2021 ; Walter and Wansleben, 2020 ). However, this literature rarely considers spatial dimensions.…”

“…Indeed, the fact that central banks are now independent from democratically elected governments does not mean that they are also independent from other forces such as financial markets—quite the opposite ( Fontan and Larue, 2021 , 159). In fact, it appears that entanglements between financial markets and central banks have become stronger than ever: central banks are now dependent on financial markets for the very operation of their monetary policies ( Braun, 2020b ; Braun and Gabor, 2020 ), while financial markets are dependent on central bank operations for their functioning ( Walter and Wansleben, 2020 ). This mutual interdependence seems to have accelerated the process of financialisation, with monetary policy becoming ‘a constitutive part of financialized capitalism’ ( Walter and Wansleben, 2020 , 646) and with central banks—‘the elephant in the room of financialization’, acting as ‘decisive catalysts for the crucial development at the heart of financialization’, namely the rise of shadow banking ( Braun and Gabor, 2020 , 242).…”