Yes, central banks should be concerned about the inequality effect of their own policies such as quantitative easing.
We recently reported on the European Central Bank’s own admission to the fact that quantitative easing (QE) has exacerbated wealth inequality in the Eurozone. This is due to the fact that when central banks inject a massive amount of liquidity to purchase sovereign bonds, it pushes up the value of those bonds.
Central bankers would usually respond that although quantitative easing increases asset value, it also contributes to lowering unemployment, which is the main driver of inequality. Secondly, they would argue that is not the central bank’s job to address this problem of inequality. Governments can do this using fiscal policies.
Those arguments deserved a response. In a paper on Social Europe Journal, Clément Fontan and Stanislas Jourdan address those objections by arguing that central banks have a moral duty to reduce the inequality effect of their own policies because this undesired consequence is both predictable and directly connected with their own policies, and furthermore, because they can avoid creating those side-effects by adopting alternative policies such as QE for People:
Last but not least, the ECB should address this issue because, all things being equal, it can do so. It could implement alternative policies that would both contribute to its price stability objective, while not increasing inequality. The proposal of the campaign QE4people for a citizens’ dividend would be one way to do so. Under such a scheme, the ECB could have injected a quarter as much money as under QE and distributed instead say €1,000 to all adult citizens in the eurozone. The measure would arguably have had similar effects than QE in boosting consumption and could be implemented independently by the central bank.
Note: This article was originally published on the QE for People campaign website. As we are gradually phasing out the QE for People campaign, we are archiving this publication here. For more information, read the history of Positive Money Europe.