Should Central Banks Be Responsible for Saving the World?

As if controlling spiraling inflation wasn’t enough to worry about, the world’s central bankers are under increasing pressure to help solve climate change, income inequality and myriad other societal ills. What’s more, elected officials in some nations are trying to exert more power over bankers for political ends.

Stephanie Flanders debates the proper role of a central banker with three esteemed women economists, Isabel Schnabel of the European Central Bank, Carmen Reinhart of the World Bank and Minouche Shafik of the London School of Economics and Political Science. While bankers can’t be the “white knight” who rushes in to save the world from global warming or income inequality, they can use their bully pulpit to prod slow-moving politicians to act, Shafik says. Schnabel goes a step further, arguing that tough talk alone won’t suffice, and that central bankers should use what economic levers they have available to advance important causes.

Of the three economists, Reinhart raised the most concern about inflation, currently running at an annual rate of 5.4% in the U.S. and 4.1% in the euro area. Yes, the world needs to address the climate crisis, she says, but nothing will stop the green economy faster than high prices, which may lead to tighter monetary policies and a steep drop in financing in developing nations.

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