Central banks and inequality

Remarks by Mr Agustín Carstens, General Manager of the BIS, at the Markus' Academy, Princeton University's Bendheim Center for Finance, Basel, 6 May 2021.

As public institutions, central banks are naturally concerned about inequality. The recent trend of rising inequality is largely driven by structural factors such as globalisation and technological change, and is not a monetary phenomenon. However, monetary policy can have an impact on the distribution of income and wealth over shorter horizons, since prolonged periods of high inflation and recessions disproportionately hit the most disadvantaged. Hence, the best contribution monetary policy can make to an equitable society is to try to keep the economy on an even keel by fulfilling its mandates of stable prices and sustainable economic activity. Mandated tasks have become increasingly challenging over the past decades, due to changes in the nature of the business cycle: low and less responsive inflation, and the growing role of financial factors. Monetary policy faces difficult trade-offs that it cannot address on its own. Other policies, notably prudential, fiscal and structural, must play their part. Central banks can also facilitate a more equitable society by wearing their non-monetary hats, not least as prudential authorities, guardians of payment and settlement systems, and promoters of financial development and inclusion. These functions help to broaden opportunities and reduce barriers to growth and development, fostering a more equitable distribution of income.