‘Legitimacy crisis’: Bank of England needs new policies and more transparency, says report
The Bank of England needs major reform to maintain the public’s trust, including the creation of a credit policy and a new approach to choosing the next governor, research and campaign group Positive Money has said.
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However, some economists have pushed back against the left-wing group’s ideas, saying they represent an incursion into areas that unelected central bank officials should steer clear of.
In a new report, the group said Threadneedle Street’s response to the financial crisis with policies such as money printing has been “complex and shrouded in mystery,” distancing it from public understanding and oversight.
“To restore the democratic legitimacy and accountability of the central bank,” Positive Money recommended that the BoE, Treasury and Department for Business, Energy and Industrial Strategy (Beis) unite to create a credit policy for Britain with certain goals in mind.
Such a credit policy would be worked out by a new commission and might seek to “to grow priority sectors, to finance innovation, to reach small businesses or farms, or to decrease consumption and mortgage lending,” the campaign group said.
Yet Erik Norland, senior economist at CME Group, said such a policy would “get the BoE into the business of picking winners and losers which might not be its strong point”.
He added: “What would be the central bank’s incentive to do such a job well? Would the beneficiaries of the central bank’s investments be the most productive investments or just the politically best connected ones?”
Peter Dixon, chief UK economist at Commerzbank, said: “Imagine the outcry if it were to advocate a credit policy which favours one part of society over another.”
Positive Money also repeated its call for the Treasury to publish a shortlist of candidates to be the next BoE governor and allow MPs to respond. Current governor Mark Carney is due to leave his post in January.
Another of the report’s recommendations was for greater diversity of Bank appointments, especially to the monetary policy committee (MPC). Eight out of nine of MPC members are men and all are white.
Tej Parikh, chief economist at the Institute of Directors, said: “Improving diversity, transparency and the MPC’s democratic outreach are admirable goals.” He added that such issues “are already on the Bank’s agenda to improve its effectiveness”.
Former MPC member Andrew Sentance said he also welcomed an overhaul of the way appointments to the Bank are made. “We do need to have a big rethink,” he said.
“If you coordinate monetary and fiscal policy better together, that could be a benefit for the economy,” he said.
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A HM Treasury spokesperson said: “The government remains committed to a successful framework that has accountability and credibility at its heart with an independent monetary policy committee and financial policy committee.”
The Bank of England declined to comment.
(Image credit: Getty)