The framework for the social accountability of central banks : the growing relevance of the soft law in central banking

Abstract

Central banks are not traditionally thought of as being socially accountable. In fact, the main innovation of central banks in the 20th century was to make them largely independent from political influence. Thus, the prevailing (economic) analyses of central bank accountability have examined the formal relationships of accountability to political bodies such as the legislature and the executive. However, this article argues that trends in monetary policy-making beginning in the 1990s inadvertently led to the potential for greater social accountability of central banks. Driven by a shifting economic consensus, central banks moved from an approach of secretive currency management to transparent communication with the market. This transformation was prompted by new beliefs about the efficiency of monetary policy. This article argues that the current 'hard law' framework for central bank accountability does not reveal all of the social mechanisms in place. In fact, 'soft law' instruments are causing more and faster institutional changes in the legal framework for the central bank accountability. The role of law is changing accordingly: central banks have their actions controlled in an ex postmodel of supervision rather than an ex anteform. This study explores the institutional development of accountability mechanisms in two central banks in advanced economies (the US Federal Reserve and the European Central Bank) and in a monetary authority in an emerging economic power(the Brazilian Central Bank). All the three central banks had the same institutional development, despite the significant differences in terms of political, social and economic contexts in which they operate.