Do central banks have human rights obligations?
Published on Tue, 2012-02-28 11:52
“Although most central banks are independent, they are in the end government bodies. As such, central banks are subject to the human rights obligations of their state,” argues in its second publication the initiative “A bottom up approach to righting financial regulation”, a consortium of civil society networks and organizations, including Social Watch and some of its members. This issue, written by James Heintz, of the Political Economy Research Institute, as part of a series of primers prepared by “A bottom up approach…”, looks at the accountability of central banks to human rights. The initiative is aimed to build the capacity of a vast array of groups and social movements willing to promote alternative proposals based on human rights in the debate. This effort to debunk the myth that only “certain trained experts” are able to frame and design financial regulations is carried out by the Association for Women’s Rights in Development (AWID), the Center for Economic and Social Rights (CESR), the Center of Concern, CIVICUS, Development Alternatives with Women for a New Era (DAWN), the International Network for Economic, Social and Cultural Rights (ESCR-Net), the Brazilian Institute of Social and Economic Analyses (IBASE), the Social and Economic Rights Program (Norwegian Center for Human Rights) and Social Watch. Further factsheets discussing the financial transactions tax and the role of the G20, as well as other matters, will be released throughout 2012. The text of the new publication reads as follows:
What are central banks? Central banks issue currency, influence the money supply, regulate banks and, through their monetary policy decisions, affect key prices in the economy, such as interest rates and exchange rates. Central banks also operate as “lenders of last resort”, providing credit in times of crisis. Although central banks are generally statutory institutions - created by the state and operating under government mandates - most central banks enjoy a very significant amount of independence from government decision-making. What do they do and how do they do it? Central banks influence the money supply by stipulating broad rules for the banking sector. For example, central banks require commercial banks to keep back a fraction of the money supplied to them by depositors as “reserves.” These reserve requirements limit the amount of loans that commercial banks can extend. By changing reserve requirements, central banks affect the amount of credit in the economy and, hence, the money supply. A central bank also sets the interest rates that it charges other banks. By raising and lowering this interest rate, the central bank influences interest rates throughout the economy. Why might other banks need to borrow? In normal times, banks may make loans that bring their reserves below the legal requirement. Under these conditions, they borrow from the central bank to make up the difference. When the central bank raises interest rates, commercial banks are less likely to borrow and this limits the credit they provide - another way of influencing the money supply. Commercial banks also rely on the central bank for credit in times of crisis. During a financial collapse, banks may not be able to meet their obligations and need to borrow from the central banks to keep themselves afloat. Central banks often take steps to influence exchange rates by buying and selling foreign currency. Suppose a central bank wants to strengthen the value of its currency. To do this, the central bank sells foreign currencies and buys the domestic currency. The central bank can only do this if it has a stock of foreign currency on hand. In other words, it needs “foreign exchange reserves.”
What do central banks have to do with human rights? The policies which central banks adopt affect the realization of economic and social rights along a number of dimensions, from the right to work to the right to food and housing. For example, if the central bank restricts the money supply and raises interest rates, this slows down the economy. A slower economy generates fewer jobs. Slower growth can reduce tax revenues that governments rely on for social and economic policies. Higher interest rates affect the sustainability of debt - both public and private - and may cause government to cut expenditures when interest payments on the debt rise. Exchange rate policies can affect the prices of food and other essential goods. During an economic crisis, the actions of the central bank can also help stabilize the economy and prevent backsliding in the realization of rights more generally. Although central banks affect the economic environment under which rights are realized, real world monetary policies are often very narrow in scope. Around the world, central banks primarily focus on reducing inflation and stabilizing prices. While these are important goals, they are often pursued without considering trade-offs. Central banks try to keep inflation extremely low by reducing the growth of the money supply and slowing the economy. As pointed out, this frequently has adverse consequences for human rights, especially the right to work. Controlling inflation, incidentally, often generates concrete benefits for financial interests, by protecting the value of financial investments and keeping interest rates high. Source |
