Central Banks Are Not Responsible for Inequality: Carstens

Central banks acknowledge the impact their actions can have on income distribution in the short term but inequality is not a monetary phenomenon, said Managing Director of the Bank for International Settlements (BIS) Agustín Carstens in a speech at Princeton University's Bendheim Center for Finance on Thursday. “While they do not have the tools to achieve specific distributional outcomes in addition to their stated objectives, they can contribute greatly to an equitable society by fulfilling their mandates,” he pointed out.

Carstens also commented that runaway inflation acts as a tax on the poor and financial sector instability caused by monetary policy let too loose for too long could lead to recession and lasting inequality. “Fulfilling the mandate of central banks to ensure macroeconomic stability provides the best basis for an equitable society. Still, keeping the economy in balance is not something that monetary policy alone can do,” Carstens said. 

The BIS Director also added that there are issues that affect the most vulnerable, such as poor education systems, lack of access to healthcare, inadequate consumer protection and poorly regulated labor markets. “Some of the points I have just mentioned pertain to the financial system and, in some countries, fall within the scope of the non-monetary functions attributed to central banks by law,” he explained.

Agustín Carstens: inequality is not a monetary phenomenon in the long run. But central banks fulfilling their mandates can support a more equitable society by keeping the economy on an even keel #Inequality #CentralBanks @PrincetonEcon https://t.co/CZikUypL3A pic.twitter.com/Jp3oh7YcJA

— Bank for International Settlements (@BIS_org) May 6, 2021

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