The Social Role of Central Banking in Promoting an Equitable and Sustainable Society

Abstract

Central Banks are very important and powerful institutions as they perform three key roles inside an economy. First, they are "the Bank of Banks" to ensure a well-functioning financial system and financial stability through its monetary policy tools and as a lender of last resort function. Second, they are "the Government Bank" to ensure financing government spending in projects and plans to stabilize the economy, promote growth, and act as lender of last resort to the government. Finally, and more importantly, "the social justice" role of central banks to promote an equitable and sustainable society. In most of central banks mission statements, they have to promote the "social justice" and the "good of the people" objectives. Controversially, mainstream central bankers view of the "good of the people" is to be focusing on low and stable rate of inflation to generate financial and economic stability. Furthermore, they have not even allowed "social justice" to play a minimal role in their mandates. This debate has been augmented lately due to COVID-19, Russia-Ukraine war, and its social and economic impact, in addition to increasing inflation almost globally. Central bankers' action by increasing interest rate was criticized widely by heterodox economists among others, due to its sever social and economic impact in the short-and long-run. This chapter focuses on "the social justice" role of central banks after COVID-19 and highlights the importance of central banking in promoting an equitable and sustainable society by, first, regulating and guiding banks toward issues such as: social finance and social responsibility, circular economy and climate change and inequality, using its unconventional monetary policy tools. Second, by working with government and fiscal policy together toward social investment that promotes sustainable society. Thus, central banks as a public entity should essentially take responsibility to promote social justice, fairness, equitable and sustainable society for current and future generation.