1 On central bank legitimacy: Culture clash and financial citizenship

In the first part of her book (chapters 1–4), Anne-Lise Riles explains why the answers of central banks to the 2007–2008 financial crisis have been a strain on their legitimacy. In chapter 2, she reminds us that central banks were given an extraordinary high level of operational independence from the 1990’s onwards, under the justification that monetary policy is more akin to science than politics. A.-L. Riles convincingly debunks this justification by claiming that mere technicalities often have important political consequences. For example, she underlines that the rules set by central bankers in their daily financial operations with commercial banks impact their investments strategies and the valuation of financial assets. In the same vein, while central bankers often claim that monetary policy is neutral (and, hence, should be left to experts), their response to the global financial crisis made it clear that monetary instruments have deep distributional consequences.

Here, the book would have gain from addressing in more detail the distributional effects of Quantitative Easing (QE) programmes: when central banks massively inject liquidity by purchasing sovereign bonds, this pushes up the value of those bonds – and affects other market segments too as QE fosters demand for corporate bonds and equities. Since financial holdings are concentrated at the top end of the income distribution, QE reinforce wealth inequalities prima facie. ^[2]

Instead, Riles relies on two other examples to debunk the myth of central bankers as technocrats acting without input from political authorities: the Japanese “Abenomics” and the US debate on the Fed policies. Then, she claims that, because it became clear that independent technocrats are dealing with political matters and coordinating with political authorities, central bankers’ legitimacy is in peril, up to point that they are under “populist attacks” from the right and the left wing. According to the author, conflicts over central banks legitimacy are “in large the product of a culture clash between experts and the various global publics that have a stake in what central banks do”.

Riles explores this conflict in chapter 3 by examining central banks as “cultural institutions” (p. 25). She argues that central bankers’ daily practices and rituals are framed by strict codes and norms, which vary in time and space. Even though this chapter is not backed by comprehensive field studies, it offers some of the best parts of the book. The insider stories provided by the Meridian 180 participants reveal that central banking circles are divided by cultural barriers between North and South countries and gender barriers. Central bankers also share many cultural traits with their counterparts from the financial sector (p. 27). They often have similar educational background, clothes and they participate in the same activities and informal gatherings. According to Riles, this proximity is an important source of legitimacy for central bankers since it reinforces their expertise and the efficiency of their policies. She also notes that this proximity is “what many outsiders see as central banks’ favoritism toward large financial institutions”. Here, the book implicitly addresses the issue of regulatory capture without addressing it more comprehensively. As I show in the next section, this is unfortunate since there is solid empirical evidence that central bankers’ proximity with the financial sector does have an effect on central bank policies, which were conducive to the financial crisis.

Chapter 4 of the book goes beyond the study of central banking culture, and explores the “culture clash” between central bankers and the public at large. The main explanation provided by the author on this clash is that, since the crisis, the “public has increasingly lost confidence in expertise itself (p. 39)” and, thus, in central bankers. In addition, this “anti-expert populism fuses with new forms of nationalism (p. 41)”. In the next section, I argue that this chapter suffers from its lack of empirical data and consideration of non-populist criticism against central bank policies.

The second part of the book (chapters 5–6) offers normative solutions against this cultural clash. Riles argues that experts and public alike need to address this crisis of legitimacy: both groups have duties in the defense of our economies and democracies. This “new vision” is based on two concepts: a new “financial citizenship”, e. g. a new partnership between experts and the public in the governance of the economy, and a new “legitimacy narrative”, e. g. a renewed explanation on why central bankers’ work is important (p. 43).

The first step towards financial citizenship is to modify central bankers’ engagement with the public. Rather than setting up forums for pedagogy on financial matters or increasing communication efforts, Riles argues that central banks should set up forums for discussion and provide space for public input in their policies. This would widen central bankers’ networks and dispel concerns about their proximity with the financial sector. Moreover, central bankers should allow public input when they face policy trade-offs with a political dimension, such as the distributive consequences of QE.

Second, since “financial citizenship” requires an educated public, Riles set up an ambitious degree of financial knowledge that an effective citizen should acquire to have a working understanding of central banking. Citizens should not only understand how the national and global financial system operate but also be committed to acquire “some form of understanding of the lives and work of the experts, as intelligent, highly trained, and specialized professionals who for the most part are extremely dedicated to public service, and who work long hours on difficult tasks” (p. 46). Of course, Riles underlines that this understanding does not preclude criticism of what central bankers do, but only if this criticism does not take the form of “conspiracy theories” or “populist attacks”.

Finally, this financial citizenship should lead to a renewed mutual understanding between central banks and the public, which would give birth to a new legitimacy narrative. Among the key elements of this narrative, Riles emphasizes economic resilience, the recognition of the interdependence between states and markets, collaboration and trust between central bankers and the public and a conversation about monetary policy trade-offs. In order to implement this new financial citizenship, Riles proposes to replicate the Meridian 180 online forum experience. In short, she proposes an online platform with a hierarchical tier system of committees, which should be inclusive, diverse, and open to participatory discussion. The selection of participants to the discussion should follow a logic of benevolent self-selection. To climb up from low-levels committees to higher levels, participants should “garner the support and respect of others at the table”. Then, “individuals with the highest rankings could advance to leadership roles, while individuals with consistently low ratings could be dropped from further rounds of discussion.” (p. 82)

2 Missing the elephant in the room: Financialisation and power struggles

It is hard to disagree with the author on certain points of her diagnostic and normative solutions. A.L. Riles is convincing when she describes the political trade-offs underlying central bank operations and it is quite easy to understand that their concealment strain their legitimacy. Even though the academic literature has already adressed the tension between the political nature of central banking and their high-level of independence, ^[3] Riles offers a welcome contribution to this stream of research thanks to her fluid, rigorous and jargon-free argumentation in chapter 2. Turning to the normative solutions, finding opponents to Riles’ call to more dialog between experts and the public should be a headache. Who would not want an inclusive, diverse and meritocratic forum to foster this dialog? Who would prefer “populist rage” against central banks’ policies to educated constructive criticism?

In fact, it is precisely because the solutions are very consensual, if not hollow, that they are unlikely to be a game-changer, nor a remedy for central banks’ threatened legitimacy. In what follows, I argue that Financial Citizenship 1) has missed one of the main dimension of contemporary central banking, which is its problematic support to financialisation 2) offers an unsatisfactory treatment of the political backlash against central banks, and 3) its proposed “online forum” is unlikely to bridge the gap between experts and “the public”.

First, Financial Citizenship does not seriously engage with the other side of central bank independence, that is, the relationship between central bankers and private financial institutions. Indeed, when central bankers became independent from political authorities in the 1990’s, their policies also became more favorable to private financial interests. In a seminal large-N comparative study, Adolph (2013) explain this policy shift by the changing professional trajectories of central bankers, which became increasingly porous with the banking sector. Moreover, EU and US central bankers believed that financialisation would help to make markets more efficient and improve their capacity to steer the economy (Turner, 2014). In addition, the Fed wanted to avoid blame for the social costs of contractionary monetary policies (Krippner, 2012), and the ECB tried to foster economic integration within the Eurozone (Gabor & Ban, 2016). More precisely, the reliance of the Fed on ample liquid and stable financial markets to steer the economy at distance reinforced moral hazard since market participants became convinced that the Fed would lower its rates when markets hit a bump (“the Greenspan put”). In Europe, the promotion of a unified repo market to foster economic growth in the periphery led, instead, to the aggravation of financial imbalances between core and peripheral Eurozone countries and to the excessive growth of the banking system. In sum, with the benefits of hindsight, we know that these attempts to govern the economy through shadow banking came with unintended consequences, and were conducive to the financial imbalances preceding the Global Financial Crisis. ^[4]

Sometimes, silence speaks volume: in the whole book, there is not one occurrence of “financialisation”, “moral hazard” or “benign neglect” (the doctrine calling for central banks to focus exclusively on their inflation target and not on asset prices). Yet, the problems created by the sheer power of finance were not dispelled by the 2007 financial crisis. Rather, they still play a role in the difficult policy trade-offs that central bankers have been facing in their efforts to stabilize the oversized and fragile financial systems. In fact, many central bankers recognize that their unconventional monetary policies trigger negative consequences, such as economic inequalities or the persistence of problematic risky financial activities (Fontan, Claveau, & Dietsch, 2016). Yet, the sheer power displayed by financial institutions complicates more beneficial policy solutions. For example, the ECB tried to link its liquidity offers to banks with some forms of conditionality in order to incentivize them to provide more credit to the real economy. However, the “infrastructural power” of commercial banks (Braun, 2018) played in their favor: they refused to take the offered liquidity under such conditions and the ECB caved in and dropped the conditionality component (Fontan, 2018). In sum, central banks legitimacy is not only threatened by cultural factors (a lack of dialog and/or a clash between public and experts) but also, and maybe more importantly, by hard, power-related facts. Central bankers’ policies were conducive to the financialisation of our economies, and, in turn, to the crisis and they have not done enough to reverse this process. On the contrary, central bankers are doing the opposite: the ECB, for example, is throwing its weight being the completion of the Capital Market Union project, which aims at reviving the securitization market in the EU (Braun, Gabor, & Hübner, 2018). Of course, central bankers were not aware that their promotion of financialization would trigger these negative consequences but it is important to consider this support in order to understand the political backlash against central banks.

Second, the study of the political and societal backlash against central banks lacks rigorous empirical underpinning and has weak normative foundations. I do not want to say here that Riles is wrong on the fact that central banks legitimacy is threatened by their answer to the 2007–2008 crisis. Rather, I underline that, because academic studies on the topic are scarce, we do not know much about the extent and the content of this backlash. ^[5] The book, however, asserts: “we are witnessing muscular demonstrations of populism. One of its targets is the central bank” (p. 37). At this point, we would expect some definition of “populism”, its political channels of influence, the motives for its attacks against central banks and a typology of its representatives. Yet, while there are 25 occurrences of the trope “populism”, including phrases such as “populist movements”, “populist attacks”, “populist rage”, “populist media”, “populist nationalism”…, it is not defined once. ^[6] This lack of rigor weakens the analytical value of the “populism” concept. Do different forms of populism trigger different criticism against central banks? Does “populism” encompasses all forms of popular resistance against central banks? How did this “populist backlash” evolved in time and space? How to distinguish between “populist attacks” and constructive criticism?

These are difficult questions and we cannot criticize the author not to answer all of them. However, the careless use of the concept in the book is problematic, since it does not rely on empirical research. The anecdotal pieces of evidence provided by the author do not dispel this concern: analyzing one blog post of the Breitbart website does not offer any comprehensive insight of the “right-wing populist rhetoric” (p. 40) nor does the unsourced account of pro-Brexit politicians who “decried the European Central Bank as a bunch of faceless “Bureaucrats in Brussels”” (p. 41).

Moreover, the normative tone against “populism” is problematic. As argued by Mudde and Kaltwasser (2017), although populist movements constitute an increasing challenge to democratic politics, they are ultimately part of democracy and act as counter-balance against risks of elites’ drift vis-à-vis their mandate. In the case of central banks, there are good reasons for public criticism against their policies. Because of their responsibility in the build-up of financial imbalances and their lack of willingness to reverse the course of globalization (see above), it is not necessarily populist to argue that central bankers are giving an undue weight to financial interest in their policies (Jacobs & King, 2016). In the EU case, the high-level of coercion displayed by the ECB towards Greece and other countries in financial difficulties stands in high-contrast with its relaxed stance towards increased financial regulation (Fontan, 2018). In sum, the public outcry against central banks is not necessarily “populist” nor misinformed: it pinpoints real policy problems that could only be solved by radical institutional changes, which go well beyond an “online forum” aiming at improving the dialog between experts and central bankers.

Third, the lack of attention to power struggles and asymmetries weaken the potential for change of the online forum, which is supposed to bridge the gap between experts and the public. In fact, the implicit theoretical underpinnings of this participative forum lies in a Habermasian conception on communicative rationality and the public sphere. Central bankers and the public must be open to dialog and acknowledge the potential inputs of the other camp as well as their own limitations; in turn, this dialog would foster more understanding between participants and better policies. One of the main criticism against the application of Habermasian communicative principles to the public sphere is its lack of attention to power asymmetries in shaping the substantive parameters of communicative power (O’Mahony, 2010). Indeed, participants to the conversation with the highest level of social and cultural capital also benefit from higher levels of communicative power and influence in the discussions.

Power asymmetries do not necessarily preclude more or less equalitarian opportunities to frame the discussion between participants, but they must be kept in check. Otherwise, participatory forums only reproduce the inequalities that are supposed to act against (Lee, McQuarrie, & Walker, 2015). Unfortunately, Riles’ online forum proposal fails to do so. Consider the list of obligations that citizens must fulfill to “meet central bankers halfway” (p. 74): they should acknowledge global interdependence and financial integration as given facts, and they should care about the technicalities of financial regulation and engage in comparative analysis between different monetary systems. Requering such knowledge from participants to the discussion means that only the most educated and specialized members of the public have the capacity to do so. This unescapable “elitism” of forum participants, at least given the educative structures of our society today, weakens the potential for egalitarian participation between “the public” and the experts. This asymmetry of knowledge is also problematic with regard to the benevolent self-selection of participants, which gives more opportunities to the members of the public who are already informed on these issues and who have time to spare, e. g. the elites. This is precisely why members of the public are remunerated in participative research (Bergold & Thomas, 2012).

In sum, asking “the public” to agree on the current settings of the global financial system and to meet central bankers halfway in terms of knowledge acquisition is unjust and unrealistic. It is unjust because central bankers have more power and higher levels of educational capital on economic issues than a given member of the public. Since great power comes with great responsibilities (to paraphrase Spiderman’s uncle), central bankers’ duties in financial citizenship should be higher than the public. In turn, other policy solutions must be implemented for central banks to truly serve the people (Dietsch, Claveau, & Fontan, 2018). For example, increased parliamentarian oversight over central banks’ asset purchase programmes would strengthen their democratic legitimacy and help to reorient monetary policy toward desirable societal and environmental goals (Blyth & Lonergan, 2014). Rather than asking the public to take the current configuration of the financial system as granted, we should also ask central bankers to do their best to reverse the financialisation process, in order to avoid new occurrences of profits’ privatization and losses’ socialization in the next crisis. We should also ask for longer “cooling off” periods to reduce the risk of capture by the financial sector. Finally, we need error-corrections mechanisms to keep central banks’ expertise in check (Longino, 1990). Reducing the dominance of central banks in the scientific community on monetary policy and the homogeneity of their boards would also be beneficial. Converting research units of central banks into entities that operate at arm’s length from the policy-setting units would be a more radical step (Claveau & Dion, 2018).

To conclude, Financial Citizenship is an interesting and frustrating book. The interest lies in the pedagogical and well-informed presentation of the political dimension of central banking and the insider perspectives scattered in the first part of the book. Riles’ anthropological background and the collective/insider nature of the Meridian 180 project show their best promises when explaining what central banks are and how central bankers work. However, the book reveals its limits, when tackling issues outside the realm of central banks’ inner workings. Here, more engagement with the (critical) social sciences literature on these topics would have helped to address these limits. If the book had addressed the critical political economy literature on the problematic relationship between financiers and central bankers, it would not have subsumed the public outcry against central banks in the concept of cultural clash. The mobilization of research in political sciences would have provide a better definition of populism and a better account of other sources of criticism against central banks policies. Finally, engaging with political philosophy and participative democracy research would have strengthened the policy solutions aiming at restoring the threatened central banks’ legitimacy.