The role of central banks

Umberto Mazzei

02/02/2012

Opinión

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"Let me issue and control the money in a country and I do not care who makes the laws."

Mayer Amschel Rothschild, 1790

Central banks are said independent if they obey the dictates of international banking. Hungary is a revealing case. In the new Parliament, the Fidesz (54%) and the Jobbik (18%), approved changes to the Hungarian Constitution with an ultra-qualified majority. The most significant change is the composition of the directive in the Hungarian Central Bank, to improve the supervision of the Government over its own currency: the forint.

It created a pandemonium in the EU Commission. The Hungarian Prime Minister, Victor Orban, was called a nationalist and anti-democratic despot, among other worse things. Washington spoke of "concern" over the reform. Paris spoke of a “Hungarian problem" because of the "nationalist and authoritarian drift" of the Government. The European media mentioned the "great public debt of Hungary" (Le Figaro), which is 80% of its GDP, as in Germany. The IMF, the World Bank and the EU froze all loans to Hungary. The forint fell.

Throughout the afternoon of January 18^th, Hungary was The Accused before the European Parliament. There was criticism over its mention of God in its Constitution, as if European countries such as Great Britain (Dieu et mon droit) or extra Europeans such as the United States (in God we Trust) or Muslim countries (in the name of Allaah) did not mention it. But it is all pure hypocrisy; what really burns is not a mention of Saint Stanislaw, but that Hungary may control its Central Bank.

The situation in essence is one where the Hungarian people – that do not use the euro- are requested to renounce exercising controls, through elected authorities, on their National Bank. It was touching to watch the unanimity of the members of the European left in defending the independence of central banks, which means freedom to act for the "technocrats" imposed by the private financial sector. In his speech, Daniel Cohn-Bendit, the former "Danny le rouge" of Parisian fame during the 68 riots, warned against authoritarian financial deviations Chavez style.

We also listened to the former Maoist, recycled into a neoliberal Atlanticist and now President of the European Commission, Manuel Barroso, explaining how democracy was respected by imposing financial sanctions and other punitive measures on a member of the EU, because of constitutional reforms approved in its Parliament.

The European Commission gave Hungary a month to amend its Constitution; the Brussels bureaucrats--whom nobody elected – order the cancelation of reforms adopted by an overwhelming majority in a Parliament elected by popular vote. It is not surprising after the disregard shown to adverse referendum results. The Jobbik party is already preparing another referendum, this time for Hungary to leave the EU.

There are recent episodes of similar independence of central banks in Latin America. A year ago Argentina wanted to use its reserves to pay off debt, but the President of the Central Bank, Martin Redrado, preferred to pay interest to creditor banks. In the end, despite the support of the international financial community, Redrado had to resign.

These facts call for us to remember the history of central banks and their role. The issuance of money has always been a prerogative of the State, which is used according to the needs of the country. In parallel there was the activity of money changers, from the merchants of schekels for Jewish worship in Jerusalem to the Italian bankers of the middle ages. The latter gave private banks their first role: keep other people's money in their possession and issue certificates of a recognized value, which could circulate internationally in return for a commission.

In 1694, both roles merged in the creation of the Bank of England. It was a private company, with secret shareholders, which used on a large scale what is known as fractional reserve, that is to say, to issue certificates of credit on non-existent money and charge interest on it. It was the model for the US Federal Reserve, a group of private banks that funds the US Government by inventing accounts in exchange for interest-bearing Treasury Bonds.

To earn money by issuing it needs no great science: it is a matter issuing a lot of money to make speculative bubbles and then sell; withdraw issued money so prices fall and then buy. It is the current mechanics of international finance. The bankers profit from public debt and speculate on the ups and downs of stock markets, always at the expense of the people.

The single public debt of the eurozone, USA and Great Britain (2011) already adds up to 32 trillion, half of the World Global Product (65 trillion), and the cause is a sudden increase in debt caused by the rescue of big private banks, ruined by their own sort of delinquent speculation, with public money.

The cause of the financial crisis is not social spending or the European social protection system, as some have argued in order to dismantle it, so employment can be made more precarious, wages lower and profits bigger. Financial fraud continues to inflate assets in speculative bubbles to improve balance sheets. Traffic with the infamous derivatives does not decrease but rather increases: from 601 trillion in 2010 to 707 trillion in 2011, according to the BIS in Basel. It is easy to predict that, in 2012, indignation with the "indignos" (unworthy) will grow.

Geneva, 29/01/2012

https://www.alainet.org/fr/node/155626?language=en