Central Banks in Crisis Times: Mandates in Crisis?

Although monetary policy has historically been the primary focus of central banks, after the GFC there was broad (although not complete) consensus that central bank mandates also included a mandate for financial stability. During the COVID-19 pandemic, the financial stability mandate of central banks has again been reaffirmed. Similarly, central bank initiatives in the fight against climate change are also justified under their responsibility for financial stability. This chapter examines the governance of central banks in light of the fact that central bank mandates have significantly evolved and enlarged in the twenty-first century, mostly without any statutory change. The expanding missions reflect a growing notion that central banks have a social responsibility mandate—albeit poorly defined—that is broader than their statutory mandate. Questions that arise include legitimacy of decisions and accountability in light of a potential democratic deficit. Globalisation has increasingly connected not just financial markets, institutions and systems, but also regulators, regulatory institutions and public institutions, including central banks, and crisis responses by central banks have pushed them into increasingly new territory; expectations of what central banks should turn their attention to, have changed. Central banks themselves have enlarged their missions and taken more initiative by reframing their missions; external parties have also called for more action from central banks in certain areas. Interpreting the mandate of a central bank too broadly increases the scope of its responsibility in an unreasonable manner. When a central bank is responsible for combatting a wide range of social ills, it loses its focus. Moreover, adequate measures should be in place for the accountability and governance of central banks as public institutions through alignment between their de facto missions and statutory mandates.