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Published online by Cambridge University Press: 20 October 2020
The COVID-19 pandemic highlights the importance of the Federal Reserve as a leading actor in global economic governance. As a creature of U.S. domestic law with an international presence and operational independence, the Fed wields authority without a well-defined international legal status, international legal standards to guide its conduct, or accountability to those around the world affected by its decisions. This Essay explores three conceptual approaches that could be used to develop norms, standards, and principles to address this gap.
1 Exacerbating these fears was the failure by Organization of the Petroleum Exporting Countries (OPEC) members to reach agreement on how to deal with declining global oil prices. See Natasha Turak, Oil Nose-Dives as Saudi Arabia and Russia Set Off “Scorched Earth” Price War, CNBC (Mar. 8, 2020), at https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html.
2 Tobias Adrian, Monetary and Financial Stability During the Coronavirus Outbreak, IMFBlog (Mar. 11 2020), at https://blogs.imf.org/2020/03/11/monetary-and-financial-stability-during-the-coronavirus-outbreak.
3 See Cohen, Harlan Grant, Multilateralism's Life Cycle, 112 AJIL 47, 54 (2018)CrossRefGoogle Scholar (noting the legally defined missions of post-World War II multilateral treaties and institutions).
4 Adam Tooze, The Death of the Central Bank Myth, For. Pol'y (May 13, 2020), at https://foreignpolicy.com/2020/05/13/european-central-bank-myth-monetary-policy-german-court-ruling.
5 Bd. of Governors of the Fed. Reserve Sys., Monetary Policy Report 38–39 (June 12, 2020), available at https://financialservices.house.gov/uploadedfiles/hhrg-116-ba00-20200617-sd003.pdf [hereinafter Fed Monetary Policy Report].
6 Ben Winick, The World's Major Central Banks Bought $1.4 Trillion of Assets in March – 5 Times the Last Record Set After the Financial Crisis, Bus. Insider (Apr. 21, 2020), at https://markets.businessinsider.com/news/stocks/central-banks-buy-trillion-financial-assets-g7-march-federal-reserve-2020-4-1029113160. This exceeded the International Monetary Fund's total stock of resources of $1 trillion available to support the institution's 189 member states plus the $160 billion that the World Bank has pledged to use to support its member states over the next fifteen months. See International Monetary Fund, The IMF at a Glance, at https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance; World Bank, The World Bank Group Moves Quickly to Help Countries Respond to COVID-19 (Apr. 2, 2020), at https://www.worldbank.org/en/news/feature/2020/04/02/the-world-bank-group-moves-quickly-to-help-countries-respond-to-covid-19.
7 See Bd. of Governors of the Fed. Reserve Sys., Coronavirus Disease 2019 (COVID-19) – Funding, Credit, Liquidity, and Loan Facilities, at https://www.federalreserve.gov/funding-credit-liquidity-and-loan-facilities.htm; Fed Monetary Policy Report, supra note 5, at 38–39. See also Jeanna Smialek & Jack Ewing, Central Bankers Have Crossed Bright Lines to Aid Economies, N.Y. Times (June 9, 2020), at https://www.nytimes.com/2020/06/09/business/economy/central-banks-coronavirus-economies.html (noting the implementation of similar programs by other central banks such as the European Central Bank (ECB) and the Bank of Japan).
8 See The Successes of the Fed's Dollar-Swap Lines, Economist (June 18, 2020), at https://www.economist.com/finance-and-economics/2020/06/20/the-successes-of-the-feds-dollar-swap-lines.
9 See Salib, Michael & Skinner, Christina Parajon, Executive Override of Central Banks: A Comparison of the Legal Frameworks in the United States and the United Kingdom, 108 Geo. L.J. 905 (2020)Google Scholar; Christine Desan & Nadav Orian Peer, The Constitution and the Fed After the COVID-19 Crisis, Just Money (June 10, 2020), at https://justmoney.org/the-constitution-and-the-fed-after-the-covid-19-crisis-2.
10 See Conti-Brown, Peter & Zaring, David, The Foreign Affairs of the Federal Reserve, 44 J. Corp. L. 665, 693 (2019)Google Scholar (noting the Fed's appropriation of regulatory diplomacy during the 2008 financial crisis).
11 See Trevor Jackson, The Sovereign Fed, Dissent (Apr. 16, 2020), at https://www.dissentmagazine.org/online_articles/the-sovereign-fed.
12 See Posner, Eric A. & Sykes, Alan O., International Law and the Limits of Macroeconomic Cooperation, 86 S. Cal. L. Rev. 1025, 1073 (2013)Google Scholar (arguing that the swap lines used in the 2008 financial crisis were successful due to their narrow scope and limited cost).
13 This issue is relevant to central banks generally but is most pertinent in the case of the Fed due to its dominant role in the global financial system.
14 See Stephen Kim Park, Guarding the Guardians: The Case for Regulating State-Owned Financial Entities in Global Finance, 16 U. Pa. J. Bus. L. 739, 777–80 (2014); see generally Paul Tucker, Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State (2018).
15 See Michael S. Barr, Who's in Charge of Global Finance, 45 Geo. J. Int'l L. 971, 976–80 (2014).
16 Pierre-Hugues Verdier, The Political Economy of International Financial Regulation, 88 Ind. L.J. 1405, 1416–22 (2013).
17 See Eric J. Pan, Challenge of International Cooperation and Institutional Design in Financial Supervision: Beyond Transgovernmental Networks, 11 Chi. J. Int'l L. 243 (2010).
18 See G. John Ikenberry, Liberal Leviathan: The Origin, Crisis and Transformation of the American World Order 200 (2011).
19 Since the end of World War II, the United States’ share of global gross domestic product (GDP) has declined from over 50% to less than 17%. See Int'l Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (COFER), at https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4. However, this has not been matched by a decline in the role of the U.S. dollar in the global financial system. As of 2019, it accounted for around 60% of global foreign exchange reserves. Over one-half of international trade is denominated in U.S. dollars, even though the United States itself only accounts for approximately 10% of imports and 17% of exports. See America's Aggressive Use of Sanctions Endangers the Dollar's Reign, Economist (Jan. 20, 2020), at https://www.economist.com/briefing/2020/01/18/americas-aggressive-use-of-sanctions-endangers-the-dollars-reign. The U.S. dollar also accounts for approximately 66% of securities issuances worldwide and 40% of cross-border lending. Id.
20 See Bd. of Governors of the Fed. Reserve Sys. Press Release, FIMA Repo Facility FAQs (Mar. 31, 2020), at https://www.federalreserve.gov/newsevents/pressreleases/fima-repo-facility-faqs.htm.
21 See Conti-Brown & Zaring, supra note 10, at 691. The Fed's domestic authority is governed by Section 14 of the Federal Reserve Act. 12 U.S.C. § 353 (2012).
22 Bd. of Governors of the Fed. Reserve Sys. Press Release, Coordinated Central Bank Action to Further Enhance the Provision of U.S. Dollar Liquidity (Mar. 20, 2020), at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200320a.htm.
23 Bd. of Governors of the Fed. Reserve Sys. Press Release, Federal Reserve Announces the Establishment of Temporary U.S. Dollar Liquidity Arrangements with Other Central Banks (Mar. 19, 2020), at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200319b.htm.
24 See Colleen Baker, The Federal Reserve's Use of International Swap Lines, 55 Ariz. L. Rev. 603, 607 (2013).
25 See id. at 625; see also Robert N. McCauley & Catherine R. Schenk, Central Bank Liquidity Swap Lines Central Bank Swaps Then and Now: Swaps and Dollar Liquidity in the 1960s (Bank for Int'l Settlements, BIS Working Papers, No. 851, Apr. 2020), at https://www.bis.org/publ/work851.htm.
26 The most prominent exception to this general statement is the ECB, which was created by international treaty. It is important to note that it is not the only exception. See Rosa M. Lastra, The Evolution of the European Central Bank, 35 Fordham J. Int'l L. 1260 (2017).
27 See Park, supra note 14, at 760.
28 See Peter Conti-Brown, The Institutions of Federal Reserve Independence, 32 Yale J. Reg. 257 (2015) (noting the applications and limits of congressional authority over the Fed); see generally Sarah Binder & Mark Spindel, The Myth of Independence: How Congress Governs the Federal Reserve (2017).
29 See Paul L. Lee, Central Banks and Sovereign Immunity, 41 Colum. J. Transnat'l L. 327, 350–67 (2003) (analyzing the treatment of central banks under the Foreign Sovereign Immunities Act). But see Ingrid B. Wuerth Immunity from Execution of Central Bank Assets, in Cambridge Handbook on Immunities and International Law 266 (Tom Ruys, Nicolas Angelet & Luca Ferro eds., 2019) (noting disputes regarding the classification of central banks as equivalent to states or as agencies and instrumentalities of states for purposes of determining immunity from execution).
30 Vienna Convention on the Law of Treaties, May 23, 1969, 1155 UNTS 331, reprinted in 8 ILM 679 (entered into force Jan. 27, 1980).
31 See Joseph Gold, Public International Law in the International Monetary System, 38 Sw. L.J. 799, 801 (1984) (stating that agreements between central banks are not seen as treaties).
32 See generally Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (3d ed. 2019).
33 See Gold, supra note 31.
34 See, e.g., Margot E. Salomon, Of Austerity, Human Rights and International Institutions, 21 Euro. L.J. 521, 525–27 (2015) (discussing impact of austerity measures imposed on Greece on health and social welfare).
35 Under Section 2A of the Federal Reserve Act, the focus of the Fed's monetary policy should be on the operation of the U.S. economy. See 12 U.S.C. § 225a (2012). While the Federal Reserve Act does not preclude the Fed from considering the impact of foreign and international economic developments on the U.S. economy, it does not require the Fed to consider the impact of its actions on other countries.
36 See Bd. of Governors of the Fed. Reserve Sys. Press Release, Swap Lines FAQs (Mar. 19, 2020), at https://www.federalreserve.gov/newsevents/pressreleases/swap-lines-faqs.htm (“By helping to stabilize foreign dollar markets, these swap lines also play a role in supporting foreign economic conditions, which also positively benefit the U.S. economy through many channels, including confidence and trade.”).
37 See, e.g., Conti-Brown & Zaring, supra note 10, at 693 (noting disputes regarding the legality of the Fed's swap lines during the 2008 financial crisis).
38 It should be noted that U.S. citizens do not often seek to hold the Fed accountable for the impact of its decisions domestically. To the extent that they do, it is more likely to be done through the political rather than the legal process. See generally David T. Zaring, Law and Custom on the Federal Open Market Committee, 78 Law & Contemp. Probs. 157 (2015).
39 See generally Advocating Social Change Through International Law (Daniel D. Bradlow & David B. Hunter eds., 2020) (discussing the importance of both hard and soft international law in determining the international responsibilities of state and non-state actors).
40 See Park, supra note 14, at 783–84 (proposing the use of administrative law procedures by central banks and IFIs). Global administrative law's principles also include requirements for review and liability. However, these may be harder to adapt to the context of the Fed as a global governance actor. For a general overview of global administrative law, see Benedict Kingsbury, Nico Krisch & Richard B. Stewart, The Emergence of Global Administrative Law, 68 Law & Contemp. Probs. 15 (2005).
41 See, e.g., Armin von Bogdandy, Matthias Goldmann & Ingo Venzke, From Public International to International Public Law: Translating World Public Opinion into International Public Authority, 28 Euro. J. Int'l. L. 115 (2017).
42 Organisation for Economic Co-operation and Development, OECD Guidelines for Multinational Enterprises, at https://www.oecd.org/investment/mne; United Nations Office of the High Commissioner for Human Rights, Guiding Principles on Business and Human Rights, available at https://www.ohchr.org/documents/publications/GuidingprinciplesBusinesshr_eN.pdf [hereinafter Guiding Principles].
43 See Guiding Principles, supra note 42, Guiding Principle 16 and Commentary. This requirement is usually interpreted to mean that the senior leadership of the business entity should adopt a human rights policy that is publicly available and that should be applied in the operations and decision making of the entity.
44 See id., Guiding Principle 17 and Commentary. This requirement means that the business entity should conduct human rights impact assessments of its proposed operations. They should also then take steps to avoid or mitigate all adverse human rights impacts.
45 See Independent Expert on the Effects of Foreign Debt and Other Related International Financial Obligations of States on the Full Enjoyment of Human Rights, Particularly Economic, Social and Cultural Rights, Guiding Principles on Human Rights Impact Assessments of Economic Reforms, UN Doc. A/HRC/40/57 (Dec. 19, 2018), at https://undocs.org/A/HRC/40/57. For guidance on how to use these principles, see United Nations Office of the High Commissioner for Human Rights, Guiding Principles on Human Rights Impact Assessment of Economic Reforms (2020), available at https://www.ohchr.org/Documents/Issues/IEDebt/GuidePrinciples_EN.pdf.
46 Universal Declaration of Human Rights, pmbl., GA Res. 217A, UN GAOR, 3d Sess. (1948). The UDHR is widely viewed as the foundation of international human rights law. See United Nations, The Foundation of International Human Rights Law, at https://www.un.org/en/sections/universal-declaration/foundation-international-human-rights-law/index.html.
47 Id. See also Daniel Bradlow, Why Central Banks Need to Take Human Rights More Seriously, Open Democracy (July 9, 2019), at https://www.opendemocracy.net/en/oureconomy/why-central-banks-need-take-human-rights-more-seriously.
48 Network for Greening the Financial System, A Call for Action: Climate Change as a Source of Financial Risk (Apr. 2019), available at https://www.ngfs.net/sites/default/files/medias/documents/ngfs_first_comprehensive_report_-_17042019_0.pdf. See also Lael Brainard, Member, Bd. of Governors of the Fed. Reserve Sys., Speech at the Economics of Climate Change, Why Climate Change Matters for Monetary Policy and Financial Stability (Nov. 8, 2019), available at https://www.bis.org/review/r191111a.pdf.
