In this book, entitled Balance of Power, Éric Monnet applies his keen and subtle intelligence to the world of central banking. He has a wide and deep understanding of the history and development of central banking, especially in the EU and his native France. He approaches this subject primarily from the standpoint of a political scientist, where he has a nice appreciation of the role of democracy in this and no doubt other fields. Thus, in his final pages, where he states that the “Central Bank Belongs to Democracy,” he writes, “While the government plays an essential role in democracy, a democracy must also live outside the government by institutionalizing deliberation and checks and balances in the functions of its administrative authorities, including the central bank” (pp. 167–168).

While I like this approach very much in theory, I was surprised, and somewhat disturbed, by the fact that I found myself in disagreement with Monnet over the two policy approaches that he advocates in pursuit of these principles. The two policy approaches are, first, the provision of a separate council to advise the central bank, notably the European Central Bank (ECB), on alternative possibilities for monetary policy (see the first half of chapter 5); and, second, the development of a Credit Council, which would advise both the government and the central bank on the appropriate development of the direction of credit flows. In this latter respect, Monnet emphasizes the importance of influencing credit flows in the pursuit of environmental issues, notably mitigating climate change (see the second half of chapter 5).

Monnet believes that the European Parliament does not have the ability to query and challenge the analysis put forward by the ECB (pp. 144–145). Certainly the ECB, as with central banks elsewhere, has many more economists than does Parliament, but are the politicians really short of alternative viewpoints? In the USA, for example, the Shadow Open Market Committee has just celebrated its fiftieth birthday and provides regular commentary on the actions of the Fed. In the UK, The Times offers a platform to a number of experts in the field, of which I am one, to offer their comments about the appropriate decision before each Monetary Policy Committee meeting. There is probably no single economic decision where the choices are so minutely dissected both in the press and in the academic literature as is the case of the monetary policy decisions of independent central banks. Moreover, these banks have, in most cases, developed an institutional structure in which divisions of internal opinion have become allowed, and are transparently reported. For example, the Bank of England has four external members with no concern about internal promotion, who were encouraged from the outset by Governor Eddie George to develop and express their own separate ideas, and have done so. In the USA, the Federal Reserve Bank presidents play much the same role. In the EU, the identities, and arguments, of the hawks and the doves become relatively well known. There is an absolute plethora of publicly stated viewpoints about the conduct of monetary policy. I cannot easily see how the addition of some kind of formal advisory body on this front could help any further; indeed, the area where the economic argumentation, and understanding, is much less is the field of fiscal policy, though the Institute of Fiscal Studies in the UK plays an extremely helpful role.

There is no doubt that central banks’ policies inevitably influence the direction of credit flows (see pp. 121–124). Monnet wants to introduce a special European Credit Council to advise on the implications of the ECB’s actions for the structure of credit within the EU. But his main focus is about climate change, and the need to direct credit flows to that end (see pp. 157–160, 164–166). While I do not deny at all the importance that should be attached to climate change mitigation, I do not think that this should be part of any central bank’s mission. The problem is that the kind of credit adjustment that Monnet wants would involve subsidization of green investment and taxation of fossil fuel usage. Thus he writes that it “might be that it is necessary to insulate green investments from an increase in interest rates in order to preserve the environment and reduce future energy costs” (p. 60). But the imposition of subsidies and taxation is surely to be kept in the province of politics, not of central banking. It has been difficult enough, though necessary, to give central banks enough command over financial stability issues in order to carry out their monetary policy mandate effectively, without adding to mission creep in a field where politicians really ought to dominate. Even if the short-term costs of climate change mitigation lead populist politicians to fail to act in the world’s long-term interests, I do not think that it is right to try to bring back mitigation methods through some kind of technocratic measure by an independent central bank.

This book was originally published in French in November 2021, and probably largely written in 2020, or before. It therefore precedes the major changes being introduced by President Trump. On page 153, Monnet writes, “[T]he operational independence of the central bank is and must remain an imperative.” That is now under threat. Not only in central banking but in many wider fields, the checks and balances in the functions of administrative authorities that Monnet rightly feels essential to the continuation of democracy are currently under threat. Sadly, therefore, one has to conclude that his book relates to issues that were subject to discussion in happier times.