Central Banking in Contemporary Capitalism: Monetary Policy and its Limits

This paper examines central banking in contemporary capitalism, particularly the role of inflation targeting and central bank independence. Emphasis is laid on the consequences of financial instability in light of the various episodes of the 1990s as well as the current sub-prime mortgage market crisis. A Marxist political economy framework of monetary policy and financial instability is employed to show the limits of contemporary monetary policy. The paper stresses the importance of the various social and political aspects of central banking and their relation to class interests. It is established that the recent financial crisis shows the class dimension of inflation targeting, particularly its defence of financial interests. Central banks have used their power to protect financial profits while socialising financial losses at the expense of the vast majority of society.