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Crunch Time for Central Banks

In little more than a decade, the global financial crisis, climate change, and the COVID-19 pandemic have transformed the environment in which central banks operate – and public opinion is not on their side. Monetary policymakers who fail to respond to these shifts in sentiment will see their reputations suffer.

ZURICH – In Golden Fetters, his celebrated study of the collapse of the gold standard in the interwar period, the American economic historian Barry Eichengreen emphasized that important political and social changes, in particular the extension of the franchise, had made it impossible to maintain the system. Electorates were no longer willing to endure austerity if sticking to the gold standard required it.

The prevailing monetary-policy regime was swept away in the new political landscape. Some countries, such as the United States and the United Kingdom, were quick to adjust to the new realities, and their economies did well. Others, such as France and Switzerland, were slow to respond and suffered the consequences.

Central banks are now approaching a new “golden fetters” moment. In little more than a decade, the global financial crisis, climate change, and the COVID-19 pandemic have transformed the environment in which they operate – and public opinion is not on their side.

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