My former colleagues Jonathan Ford and Neil Collins have bagged an absolute must-listen interview with Paul Tucker, formerly of the BoE, now a fellow at the Harvard Kennedy School.
Tucker is also the author of Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State. He also happens to be a voice I greatly respect — especially with respect to how the 2008 crisis played out — due to the simple and matter-of-fact way he often frames central bank affairs.
In this episode of the “A long time in finance” podcast, Tucker looks back at the transition the BoE underwent upon being given independence by Gordon Brown in 1997.
An interesting fact perhaps overlooked these days is that the BoE’s independence was conditional to the Bank giving up its debt management and supervision power.
As Tucker tells the podcast, the thinking of the government back then was:
“…if they’re responsible for monetary policy, and debt management, and financial supervision, oh, my God, you know, they’ll be appallingly powerful. They may almost be as powerful as the Treasury and that would be absolutely terrible.”
Post 2008, the BoE was handed back some of those supervision powers under the remit of financial stability and the new Prudential Regulation Authority.
Has that made a difference to its independence? We will find out in next week’s episode.
A worthwhile point to bear in mind until then is Tucker’s observation that the simple act of making the central bank independent shaved double digits off long-term government borrowing costs. This is a notable point for this day and age for two reasons.
First, it brings home the point that the current inflationary environment — and all other monetary woes — can no longer be solely blamed on government policy or elected officials.
Second, as I tried to allude to in my previous post, today’s inflationary environment raises the possibility that central bank independence may not have been the stabilising monetary force that technocrats made it out to be. Indeed, it potentially implyies we know a lot less about how monetary systems work than we first thought. The alternative possibility is that political power and influence has crept back into the Bank, undermining its capacity to operate as an objective entity. Hence the f*** up.