Until recently, central bank independence seemed firmly established among our economic institutions. Now, though, its future looks more uncertain than ever in its 20-year history. The Bank of England finds itself under fire from many angles. When it raised interest rates for the first time in a decade last month, the TUC’s Frances O’Grady called it a “hammer blow for those in problem debt.” Ian Blackford, leader of the SNP in the Commons, used part of his response to the Autumn Budget to condemn quantitative easing (QE), which “has driven up house prices and stocks and shares.” And for their part, leading Tories have traded blows with the Bank over Brexit.
Can the Bank’s independence be secured? One crucial issue is rarely mentioned: the diversity of those occupying its most powerful positions.
Prioritising new and diverse figures for prominent roles in a central bank can help break taboos and generate better, more innovative policy. The Monetary Policy Committee (MPC) – the group of individuals who set interest rates and inject billions of pounds into the economy – is currently made up of eight men and one woman. Five of those men have backgrounds in finance, constituting a majority on the committee. Silvana Tenreyro is not only the sole woman but also the only member with a primarily academic background. At a time when the Bank of England is self-avowedly committed to ‘cognitive diversity’, its top decision-making body is conspicuously homogenous.
Positive Money already delivered a briefing to MPs on the Treasury Select Committee (TSC) calling for greater diversity on policymaking committees at the Bank of England. Our briefing showed why politicians have a clear obligation to consider diversity when appointing members of the MP, and why ignoring it would be an abdication of their parliamentary responsibility. Happily, Nicky Morgan, chair of the TSC, acted on our recommendations and received a response from Chancellor Philip Hammond. But the current conversation, while strong on one dimension of diversity (gender), ignores others, such as professional experience.
What is needed on the MPC is a broad range of perspectives – not nine people using the same, bankrupt models built on economic and financial orthodoxy. That includes appointing figures from non-financial business backgrounds such as manufacturing, as well as from civil society and trade unions. These experts would be better placed to assess the many facets of modern monetary policy and communicate its consequences more clearly to government. In turn, the government must take account of monetary policy’s social and environmental impact and ensure the optimal design of the monetary policy framework.
For too long, groupthink has held us back from a better form of monetary policy. Greater diversity would unlock its true potential.