Central bank - composition

In previous two posts about the central bank of the European federation I discussed its functions and powers, its personnel questions and decision-making mechanism are to be discussed now.

In the beginning of my consideration about the central bank I started with a quotation and I can do the same in this part. For this once, the quotation is: “Democracy stops outside this enterprise's gates.” This quotation comes from the same time as the one that I used previously but it is not important by whom and under what circumstances it was pronounced,  significant is what it articulates. It personifies a generally widespread opinion that economic activity is something different than administration of public affairs. Also others than I noticed that people are allowed to have a feeling that they are the citizens only at the time of elections but as soon as they cross thresholds of their workplaces they turn into disciplined executors of others will with limited possibility of own decision-making. If we take into consideration how much time one passes in the job (if he/she is lucky to have one) it proceeds from it that democracy actually is restricted to only small scope of human life (and provided that what is called democracy really is democracy).

A talk about the central bank should there however be here. From the point of democratic administration of affairs the central bank stands in a borderland. On the one hand it is (in most European states) a public institution staffing and decision-making process of which is a matter regulated by laws, on the other hand the central bank's policy itself is believed to be a part of capitalist economy and has an “exception to democracy” in this respect. The laws that regulate activity of central banks put the accent to their independence what is without doubt right. But the opposite pole is wholly missing – responsibility. The central bank has its duties and objectives prescribed by the law that it should accomplish but nobody usually is entitled to evaluate whether the central bank accomplishes the objectives in a proper way. There is no defence and no appeal against the central bank's activity. Because the central bank is considered to be a “player” in the capitalist economy it is self-evident in common opinion that it acts as any other economic “player” according to its own deliberation and is responsible to nobody. In other words, because it is expected that that it acts according to rationality and demands of the market which should be unregulated according to the present economic doctrine it is not demanded that the bank renders accounts in a democratic way which means above all to the citizens. Simply, in a system of dominance of economy over (democratic) politics the central banks are responsible rather to the markets than to the citizens.

It would be inconsistent with what I wrote about other parts of the European federal constitution if I wanted to copy provisions about central banks' officials from the laws of the European states now. It is not possible to react to the trend of decline of democracy and of shift of the power outside of politics by mere emphasis on maintaining the (manifestly not working) present model of democratic politics but by strengthening its democratic attributes. In the case of the central bank introduction of the principle of its responsibility to the citizens and so direct election (and recall) of its officials meet this demand. Some objections can be made against it, some of them would certainly be only pretexts, I will mention only one here – so called exhaustion from elections. So far I assigned election of the federal parliament deputies, of the Council of Chancellors, of the President of the Supreme Court and of the President of the Supreme Audit Office to the people, so this is the fifth proposed federal election. I do not intend to suggest another election but the list is rather long despite that and the “exhaustion of elections” can be feared to some extent. Some people really can feel bothered by greater number of elections but let us not forget that polls are not always heavy also where elections are from time to time. Some people does not go to the polls because they are not interested in politics, the paramount is however a feeling that something can be influenced through voting. I admit that the objection of exhaustion of elections is not entirely unfounded but if we want as democratic European federation as possible we hardly are enough with one election (parliamentary).

Now I finally get to who should be elected in the central bank of the European federation and what should be a decision-making structure of the bank. In fact, I am faced with the same problem as at election of the executive power representatives or judges of the Supreme Court here and therefore the conclusion will be very similar. The primary decision-making power in the central banks is usually held by a council with several members (in most central banks) or is divided among more councils each of them with its sphere of competencies (for example in the National Bank of Poland, Hungarian National Bank, European Central Bank). From the point of view of electing representatives of the central bank the second variant is more favourable which I am to explain immediately.

A choice among several clearly defined personalities is more comprehensible for citizens-voters than among lists of more “anonymous” candidates and therefore only one representative should be elected in my opinion which is not meant naturally that only one man should make all decisions in the central bank. This directly elected representative (president of the bank) would have the right to decide about the most significant affairs on the basis of his direct mandate from the citizens, above all about amount of circulating money and instruments related to it (for example interest rates level), in other words about currency stability. Implementation of these measures then should be entrusted to an executive board that would so carry out day-to-day management of the central bank including the powers that the elected president would not carry out, for example commercial financial institutions supervision or securing fluent flow of payments and clearing.

Members of the executive board could – as is a custom – be appointed by other constitutional institutions but it is better in my opinion if they are appointed by the president of the central bank himself which even more emphasizes importance of his election. For the purpose of decision-making in the central bank, it is not necessary that the executive board members are holders of different opinions than the bank's president; on the contrary, it is transparent for citizens that who they elected implements policy of the central bank without necessity of compromises. Maybe somebody remembers what I wrote about position of the directly elected president of the Supreme Court. I made him not the only member of the decision-making board of the court but only one of more although a privileged one because it is not possible that decision-making belongs only to one person in the highest court instance. But I believe that it is possible in the case of the central bank, at least as far as the most important decisions related to currency stability are concerned. It must not be presupposed that the president of the bank will be overburdened with all work that in other respects the whole board performs; the executive board should act as a consultative body in questions entrusted to the president's decision-making in my suggestion. This arrangement can be compared with situation in some (extra-European) states – one person (typically a president) holds the executive power there but there are ministerial cabinets besides which execute decisions of the president and have also consultative function.

I propose not to complicate the question of election of the central bank's president. I introduced a method of electing one person to a European federation's institution already earlier – that was a case of the Supreme Court's president and the president of the Supreme Audit Office. I take over this method also for the purpose of the central bank president's election. To remind, these are the conditions and circumstances: candidates must be at least 40 years old and meet certain professionals preconditions, necessity of 50000 citizens accepting candidature and election through double majority (majority of citizens and majority of states).

A question to be discussed is a length of the mandate of the president of the central bank and whether it should be renewable. Because this question can be answered more or less in whatever way I will follow the conditions valid for the members of the executive board of the European Central Bank which is a mandate of eight years without possibility of reelection. I believe that one longer mandate with potential removal (by the citizens) is better than a shorter renewable mandate. Because the members of the executive board are appointed by the bank's president in my proposal the length of their mandate must be equal, that is also eight years and they should not hold it more than once too because their mandate is derived from the one of the (current) president.

In addition that the central bank's president and the executive board members should have relevant education and are expected to be experts on monetary questions also provisions about incompatibility of functions (among others prohibition of any gainful occupation and non-paid financial consultancy) are necessary in the constitution as well as provision about the beginning and the end of the mandate of the central bank's officials. I intend to take over these provisions from the previous parts of my proposal because it is unnecessary to invent anything new.