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Are Central Banks Worthy of Trust?

By: C.Jay Engel

In an essay on Edmund Burke’s view of the nature of government, Murray Rothbard quoted him as saying:

In vain you tell me that Artificial Government is good, but that I fall out only with the Abuse. The Thing! the Thing itself is the Abuse!” 

That is, our complaint isn’t just with “abuse of the system,” it is with the system itself! The system is the abuse. Everything else is a symptom, a surface issue.

Thus, when BOE Governor Mark Carney spoke on various banking sector abuses at the Banking Standards Board Panel, he misses the entire point. The title of the speech is “Worthy of trust? Law, ethics and culture in banking” and he is concerned that such abuses have produced a “crisis of legitimacy.”

“This immense progress has been overshadowed by a crisis of legitimacy. A series of scandals ranging from mis-selling to manipulation have undermined trust in banking, the financial system, and, to some degree, markets themselves.”

Bad behaviour went unchecked, proliferated and eventually became the norm.

What can we say? When you place one institution in charge of the entire monetary sector within a given economy, abuses should hardly be a surprise. But rather than questioning the government-granted monopoly, the outlawing of free competition in money and banking, Carney and others of the Bureaucratic persuasion can see only one solution: more regulations and more oversight. He states:

Changes to incentives, new codes and a clearer mapping of responsibilities will all help improve conduct and lay the groundwork for better culture.

We are seeking to raise expectations and norms by using a combination of hard and soft law, with much of the latter developed by the private sector.

They are trying to address various manipulations in the foreign exchange markets, interest rate controversies, and crony business relationships. But how could any of these things be a problem if central banks were not granted exclusive legal control over money and interest rates in the first place? These crony relationships and backroom deals are merely symptomatic of the mandated existence of these monopoly banking institutions. 

More laws which aim to stem abuses of the system presuppose that the system itself is ethically pure. Opponents of central banking should not be mere opponents of abuses, but opponents of central banking itself!

Carney characterizes himself as wanting to issue a hard crack down on the “bad apples,” but the solution should simply be to eradicate any possibility of these bad apples getting these positions in the first place. How can a bad apple fill a bureaucratic position that does not exist?

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