The Roll of Central Banks

In his piece about Brexit and the UK’s second quarter contraction, Paul Hannon wondered about the role of central banks generally in keep[ing] the global economy growing if trade disputes escalate. Can they even do so, he asked.

I say the question is a non sequitur. It’s not up to central banks to keep the global economy growing. It’s each central bank’s job to maintain stable prices in its respective nation. Central banks certainly can coordinate their actions with each other, but that can be done legitimately only with each bank’s own national interests in mind, not those of any other nation or collection of them.

If central banks stick to that simple (and not so simple) task, their respective nations’ economies will have a better chance of staying healthy and growing, and that will aggregate to a healthy and growing “global” economy.

Against that, trade disputes are relatively minor bumps.  Economic wars, such as the one the PRC has been waging against the US and against the West generally for decades, are much more serious threats to the global economy and to individual national economies, but that doesn’t alter in the slightest the responsibility of national central banks.

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