A Study on Central Banks and Social Responsibility: the Case of the ESCB

Abstract

Can and should central banks have a social responsibility (‘central banks’ social responsibility’—CBSR) to play a role in social issues, such as economic inequality? This article provides a conceptual account and analysis of the benefits and challenges associated with CBSR. After showing that CBSR is gaining momentum through the pull of influential actors including central banks themselves, policy-makers, and public opinion, I discuss two types of CBSR the European Central Bank (ECB) could engage in. The moderate approach involves action based on the primary mandate, whereas use of the secondary mandate would present an enlarged version of CBSR. While action based on the primary mandate is both legally possible and desirable, the ‘powered’ version of CBSR comes with significant legal hurdles. Absent clear prioritization by the Union’s political institutions of certain economic policies and objectives, selection and prioritization by the ECB of one or more policies would risk opening the floodgates to policy-making. The enlarged version of CBSR is also undesirable, as it would make the scrutiny of the ECB’s activity more challenging for the European Parliament, negatively alter the public trust the ECB enjoys, and heighten the risk of friction within the European System of Central Banks.