Insights from the 6th Episode of Academia de Guvernanță: The Evolving Role of Central Banks - Balancing Economic Stability, Social Responsibility, and Innovation
The 6th episode was about the strategic role of central banks in supporting economic growth from a governance perspective, and brought together Anca Dragu, Governor of the National Bank of Moldova, and Gabriela Hartescu, PhD, Dean and Co-founder of Envisia.
The 6th episode of Academia de Guvernanță explores the evolving role of central banks, emphasizing their growing complexity and impact on broader economic and social systems. Anca Dragu, Governor of the National Bank of Moldova, highlights that central banks traditionally focus on price stability by controlling inflation. Their main tool in this regard is adjusting interest rates, which directly influence the cost of money in the economy. For example, Moldova has maintained inflation near its 5% target through such measures, which are essential in managing liquidity and preventing price hikes driven by excess money supply.
Dragu explains that central banks often relax monetary policy during crises, lowering interest rates to encourage investment and reduce saving. In these situations, central banks collaborate closely with governments to ensure that monetary and fiscal policies are aligned. Central banks must also ensure that banking systems are resilient, with clear rules for resolving bank failures and managing insolvencies to maintain public confidence during difficult times.
Gabriela Hârțescu, a founding member of Envisia - Boards of Elite, points out that central banks are increasingly expected to go beyond their traditional roles. There are growing demands for them to influence economic growth, job creation, and even sustainability efforts. This expanded role represents a shift from a purely technical focus on financial stability to a broader, more involved approach in shaping national economies.
One of the key challenges central banks face is maintaining their independence while navigating political pressures. Hârțescu emphasizes that the independence of central banks is vital for ensuring that decisions are based on technical expertise rather than political influence. However, recent trends show that political actors sometimes interfere with central bank appointments, which can erode trust in these institutions.
Another challenge is the increasing social and political responsibility of central banks. No longer seen as neutral actors, central banks are now expected to support financial health, consumer protection, and climate change mitigation. For example, by setting low interest rates, central banks have indirectly impacted pension funds, which depend on returns from financial markets. These actions, while necessary, highlight the complex and sometimes controversial role central banks play in balancing different social and economic interests.
Dragu also discusses Moldova's ongoing efforts to align with European Union standards as part of the country's EU accession process. The National Bank of Moldova plays a key role in this process, particularly in areas such as capital liberalization and economic policy. Dragu notes that the negotiation process involves significant reforms, which will bring Moldova's institutions in line with EU requirements.
Hârțescu further elaborates on several key areas where central banks must adapt to remain relevant. One of these areas is the supervision of new players in the financial market, particularly FinTech companies. Central banks need to develop advanced tools to monitor and regulate these companies, whose business models differ significantly from traditional banks.
Another area of concern is the growing volume of non-performing loans (NPLs). In Europe, NPLs increased by 0.9% from 2022 to 2023, reaching €27.5 billion. Central banks and the European Central Bank (ECB) are revisiting corporate insolvency laws and looking to enhance the role of secondary markets in managing these problematic assets.
Hârțescu also highlights the emerging importance of central bank digital currencies (CBDCs), such as the digital euro, which aim to complement physical cash and provide consumers with a new payment option. However, CBDCs bring challenges related to cybersecurity, consumer data protection, and financial system stability, which central banks must address.
Finally, central banks are expected to play a more active role in addressing climate change. Hârțescu explains that monetary policy can be used to support environmental interventions, reflecting the central banks' evolving role as partners in managing global challenges. Moreover, there is growing pressure on central banks to promote diversity and inclusion within their ranks, ensuring that their governance reflects the diverse societies they serve.
In conclusion, the episode underscores the expanding role of central banks, which now includes not only economic stability but also social responsibility, sustainability, and inclusiveness.
The whole discussion is here.
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