Monetary Law and Institutions

Despite the outsize role that they play in the economy, monetary policy and monetary authorities like the Federal Reserve remain shrouded in mystery and largely democratically unaccountable. This democratic deficit has grown enormously in the wake of the 2008 global financial crisis, as democratic institutions have become increasingly paralyzed, and the world has come to depend on central bank technocrats and “unconventional” monetary policy to boost the economy. Yet, by inflating asset and stock prices, and increasing risk-taking by financial institutions and investors, unconventional monetary policy—notably, “quantitative easing” and negative effective interest rates—has increased financial instability and exacerbated socio-economic inequality, in turn compounding political polarization. The recent turmoil in financial markets, triggered by the Federal Reserve’s rapid monetary tightening and banks’ over-exposure to interest rate risk, highlights the dangers of over-relying on monetary policy as a tool of economic management.

This course aims to demystify and critically examine the monetary system. It introduces students to different theories of money and the tools and institutions of monetary policy. It challenges the desirability as well as the legitimacy of central bank activism, and the orthodoxy of monetary policy as an exception to the rules of administrative procedure. The course also explores the future of the monetary system, including proposals for limiting the powers and strengthening the accountability of monetary authorities, as well as the possibilities due to technological developments such as central bank digital currencies. The course focuses on the US monetary system, centered in the Federal Reserve, and the international monetary system, centered in the Bank for International Settlements and International Monetary Fund, and will feature guest speakers from these institutions.