Mervyn King: Central banks cannot solve most of society’s problems

A former governor of the Bank of England has warned that central banks cannot be relied on to solve most of society’s problems.

Writing for Bloomberg, Mervyn King said there are “serious challenges to our societies. But the gravity of an issue is not the sole, nor even the most important, criterion for central-bank involvement. Some of society’s problems warrant a monetary response. Most do not.”

He also warned that central banks are taking on a huge risk by increasing the degree of influence they exert over political issues.

Central banks risk losing their independence if they establish themselves as a vehicle for implementing political agendas, he warned. Issues such as climate change and racial justice are not the domain of central banks, King said.

“Amid widespread frustration with the inability of elected policy makers to address the critical issues of the day, influential voices — including politicians, economic luminaries and the general populace — increasingly called on central banks to step in. Central banks became ‘the only game in town,” King wrote for Bloomberg.

The warning comes as the world’s best and brightest central bankers prepare to meet at the annual Jackson Hole monetary policy symposium this week.

Chair of the Federal Reserve, Jerome Powell, will deliver a speech on Friday setting out the central bank’s expectations of the trajectory of the US economy in the coming months.

Analysts expect him to outline how the Fed will begin tapering the wave of monetary stimulus measures it unleashed in response to Covid crisis.

There are concerns that the ultra-accommodative stance maintained by the Fed is exacerbating inflationary pressures in the US economy.

Inflation is currently running at 5.4 per cent annually in America, over double the Fed’s two per cent target.