Dr. Steffen Murau| steffenmurau.com

‘Quantitative Easing, Central Bank Independence and the Seeming Fundamental Difference between Monetary and Fiscal Policy’ (with Tobias Pforr)

Quantitative Easing (QE) has become the main new central banking activity after the 2007-9 Financial Crisis. Conventionally referred to as an ‘unconventional monetary policy’, the Federal Reserve has recently called it the ‘new normal’ of central banking. At the same time, QE sparks fear and anxieties in others, especially as it is said to endanger central bank independence and blur the boundaries of monetary of fiscal policy with inflationary effects. This paper investigates this criticism. By adopting insights from International Political Economy, the Money View and Social Studies of Finance, we advance two separate, yet connected arguments. First, we argue that both expansionary monetary policy and debt-financed expansionary fiscal policy originate in one generalized balance sheet operation, a swap of IOUs between the central bank and the treasury, and are hence two sides of the same coin. From that perspective, QE represents a prototypical form of credit money creation and is not at all as unconventional as the current discourse suggests. Second, we highlight that the concept of central bank independence imagines the process of money creation to be fully apolitical. However, we argue that the institutional setup for money creation is always and everywhere political because it relies on social infrastructures that organize creditor-debtor relations. Historically, however, there have always been strategies to depoliticize money creation, the latest one being the dogma of central bank independence. By reconnecting monetary and fiscal policy, QE in itself does not politicize money creation but puts a crack in the existing de-politicization strategy.

Presentations at EAEPE conference, Nice (09/2018), Oxford Political Economy of Finance Conference (10/2018), City Political Economy Research Center seminar (11/2018), Intersections of Finance and Societies conference, Edinburgh (12/2018), Annual Convention of the International Studies Association, Honolulu (03/2020)

Co-author:
Tobias Pforr, University of Reading

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