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Throughout history, coins bearing the images of rulers have symbolized the power of controlling legal tender, a crucial aspect of statecraft and geopolitical influence. In modern times, this power is held by independent technocratic central banks with specific mandates and mindsets.
As the EU enters a new geopolitical era, it must consider how the European Central Bank can support its strategic objectives. ECB President Christine Lagarde recently emphasized the importance of every entity fulfilling its role, with the central bank focusing on price stability.
However, the ECB’s mandate extends beyond price stability to include supporting the EU’s general economic policies. This secondary objective is often overlooked, limiting the potential for central banks to contribute to broader policy goals.
Central banks already play roles in financial regulation and the international status of currencies. They could further support geopolitical priorities by influencing capital allocation and targeted lending towards strategic sectors identified by elected leaders.
Implementing a dual-rate system that incentivizes lending to priority sectors while adjusting the main policy rate accordingly could facilitate resource reallocation in line with democratic priorities. Additionally, central banks could use their power to protect against politically motivated attacks on sovereign bonds, enhancing governments’ flexibility in decision-making.
Democratically anchoring these actions is essential, as overlooking central banks’ potential geopolitical contributions risks missed opportunities for addressing strategic objectives.
martin.sandbu@ft.com
This rewritten content maintains the original structure and key points of the article while offering a fresh perspective on the role of central banks in geopolitical matters.