Delivered. This is the advantage that the historian has over the economist: it is difficult to make him believe that “it was better before”, or that “it has never been done before”. The view of Eric Monnet, historian of currency and finance, director of studies at the Ecole des Hautes Etudes en Sciences Sociales and professor at the Paris School of Economics, on the role of the European Central Bank (ECB) since 2008 thus makes it possible to decentralize the controversy which today divides economists into two camps. For some, the policy of zero interest rates and massive redemption of State and corporate debt securities “whatever the cost” pursued by the ECB to successively “save” the banks (2008), the European States (2011) and finally the economy hit by the pandemic (2020), would have awakened the demons of inflation and betrayed its original mission of preserving the “natural” equilibrium of prices. For the others, the ECB did what was necessary, but the main difficulty would be to “return to normal” by slowly deflating its balance sheet and gradually raising rates.
Eric Monnet reminds us that the historical mission of central banks is to preserve the three functionalities of the sovereign currency they issue: means of payment, means of credit, means of savings. Currency, that is to say the value of the money that everyone has in their pocket, is a common public good, because it is what makes it possible to buy enough to live, to borrow enough to invest , to finance through taxes the institutions that protect, care for and educate the citizen.
Choices under discussion
The objective of monetary policy is to protect the confidence we have in this currency, which is threatened by two dangers: excessive price increases, which paralyze trade – this is inflation; the financial crisis, which paralyzes credit and activity and drives down prices – this is deflation. In this, central banks fulfill a mission of protecting citizens against economic and financial risk, just as the army and the police protect them against violence and crime, the hospital against disease, etc. Monetary policy is a public policy of the welfare state, and not the application of a technique that would guarantee that the “laws of the economy” can express themselves freely in the markets.
By using unconventional tools, the ECB has in fact returned to practices already used by central banks in the past, for example to rebuild Europe after 1945: credit orientation, support for priority public investment, buy-back of sovereign debt, etc. For the author, it must persevere on this path, by financing the energy transition to protect the economy from climate risk, by issuing its own digital currency to protect citizens from the risk of private cryptocurrencies. But it must also, in order to protect its independence not only vis-à-vis governments but also markets and banks, accept that its choices, which are decisive for the common public good that is money, can be democratically debated by a ” European Credit Council” placed with the European Parliament.
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