Rethinking Economic Policy for Social Justice: The Radical Potential of Human Rights by Balakrishnan Radhika Heintz James Elson Diane

Author:Balakrishnan, Radhika,Heintz, James,Elson, Diane
Language: eng
Format: epub
ISBN: 9781317572114
Publisher: Taylor & Francis Ltd

Monetary and financial policies

Central banks issue currency, influence the amount of credit in the economy, regulate private banks and other financial institutions, and influence critical prices in the economy, such as interest rates and exchange rates. Central banks also operate as “lenders of last resort,” providing credit when the financial sector is in crisis. Although central banks are generally statutory institutions—created by the state and operating under government mandates—most central banks enjoy a high degree of independence from other areas of government policy-making. Despite this independence, central banks are public institutions, and it can be argued that they also have human rights obligations. These include the obligation to protect rights from the actions of private financial institutions and to channel financial resources to support the realization of rights.

Central banks formulate and implement monetary policy, which directly affects the resources available for the realization of rights. Monetary policy also influences the cost of those resources through its impact on interest rates and exchange rates. Higher interest rates discourage borrowing and make credit more expensive—as a consequence, economic activity slows. This may contribute to unemployment as firms cut back on hiring. Slower growth can also 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 governments to cut expenditures when interest payments on the public debt rise. If the principle of “maximum available resources” applies to financial resources, then the implications of central bank policy for the realization of rights must be part of the picture.

Monetary policy today almost universally prioritizes maintaining very low rates of inflation—a goal often referred to as “price stability”—over encouraging economic growth and supporting full employment. Many central banks formalize this policy stance by adopting an approach called “inflation targeting,” in which they announce a target range of inflation—for instance, between 1 and 3 percent—and then adjust interest rates and credit supply to try to meet this target (Epstein and Yeldan 2008). Central banks attempt to lower inflation by reducing the growth of credit, dampening demand in the economy, and thereby curtailing upward pressures on prices.

Some economic theories posit that there is no trade-off between lowering inflation and expanding economic activity. They claim that market economies tend to move towards full employment through decentralized decisions of firms and consumers, guided by price signals.9 Within this theoretical construct, policies that attempt to reduce unemployment below a certain threshold, sometimes called the “natural rate” of unemployment, lead to inflationary pressures.10 The extent to which lower rates of unemployment actually lead to higher prices depends on a variety of factors, including the determinants of inflation in a particular country, the ways in which prices and wages are set, the degree to which unemployment is a result of slack demand and imperfect markets, and how well labor markets function when matching workers with available job opportunities.

The sources of inflationary pressures must also be taken into account. In many countries, inflation is not primarily caused by central bank policy.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.