Bank of England’s Bailey: Central banks must challenge populism
Andrew Bailey has called on central banks international institutions to stand up to proponents of populism with their words and actions, warning that organisations like the Bank of England are being painted as “unresponsive and acting for the benefit of powerful” interests.
In a speech to a group of economists and officials in London, governor Bailey issued a stern rebuke against populist forces and the erection of barriers to international trade, urging economic bodies to “challenge back, in deeds more than just words”.
“The rise of populism makes the task [of multilateral institutions] harder,” he said, adding: “Now is not the time to close the world to the benefits of trade. But to do this, we have to be realistic and assertive in defining and achieving robust openness.”
The governor of the Bank of England also warned of four headwinds to economic and social progress, including ageing populations – which he said weigh on growth and adds to fiscal pressure – and the economic shocks associated with climate change. He also identified defence spending’s fiscal consequences and the restrictions being placed on free trade.
The remarks come at the end of a tumultuous week for central banks, after it emerged on Sunday that Donald Trump’s justice department had launched an investigation into the Federal Reserve and its chair, Jay Powell.
The probe, which Powell argued was in fact a consequence of the Fed’s reluctance to cut interest rates faster, was rounded on by all Powell’s living predecessors.
In statement also signed by former Treasury secretaries from both of America’s main political parties, Ben Bernanke, Janet Yellen and Alan Greenspan accused the the Trump administration of behaving like “emerging markets with weak institutions”.
Bank of England’s Bailey signs Fed support statement
It also triggered an unprecedented joint intervention from some 11 central banking chiefs who declared “full solidarity” with both Powell and the Federal Reserve’s system of independence.
Bailey’s speech, which was given at the Bellagio Group event this week but published on Friday, did not address the Department of Justice investigation explicitly, despite him being a signatory of the central bank statement issued on Tuesday.
But he warned the erosion of trust in institutions like the Bank of England would harm prosperity and increase instability.
“[We must] recognise the importance of, and invest in the broadest sense, in the multilateral institutions,” he said. “We should not pretend that all has been perfect, and we must be prepared to make changes where they are called for, as was done in the past. But we must be clear and agreed that a world without effective institutions is unlikely to be stable.
Separately, Bailey emphasised the importance of the “benefits of open economies” but acknowledged that – amid a backdrop of rising geopolitical and trade tensions – defining these interests “has been hard”.