The political economy of central banking in the digital age

Sir Paul Tucker

2017 | SUERF Policy Note, Issue No 13

An issue which many central banks have recently become interested in is how the new technology affects central banks: what central banking is and what central banks do? In 2004, I aired the possibility of the Bank of England issuing e-money at an annual strategy meeting. Since leaving central banking, my preoccupations have been less with substance than with the political economy of unelected power, of which today’s post-crisis central banks are, of course, the epitome. I am therefore going to try to put the substantive issues raised for central banks by the new technology into a political-economy framework. By those lights, it is vital that the purported boundaries to any central bank e-money ventures or other new services be credible.

I will start out, in Part A, by outlining a conception of central banking as it is (or could be) practiced now, just as society starts to grapple with the new technology. I shall then ask, in Part B, whether and how the new technology challenges or even undermines that broad conception. Perhaps surprisingly, the big picture answer is that it will not, unless central banks move into providing banking services for everyone, which would make them more like a latent state-credit bank. An important qualification to “things stay the same” is that central banks will need to re-engage with the integrity of the deep plumbing of the financial system. They must, though, be vigilant in not taking on roles that give them excessive power or which don’t fit with their core purpose of maintaining monetary system stability.

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