The Myth of Market Neutrality: Comparative Study of the ECB’s and SNB’s Corporate Security Purchases

August 14, 2019Published by Jan van 't Klooster & Clément Fontan

This comparative study examines the corporate bond purchases of the European Central Bank (ECB) and the Swiss National Bank (SNB) and investigates how central bankers legitimise these purchases.

It finds that the central banks downplay the novelty of corporate asset purchases and attempt to depoliticise them using the theoretical ideal of market neutrality. The paper finds that this argument is merely a return to the traditional model of central bank independence used before the global financial crisis, a model that is no longer appropriate for the new and more interventionist monetary policy tools.

Governments depoliticised monetary policy by granting central banks independence at a time when their principle activity was simply to pursue price stability by setting short-term interest rates. The narrowness of this objective, the simplicity of the instrument used, and the absence of clear distributive consequences all meant that central banks could credibly present themselves and their activities as technocratic, removed, neutral and independent.

However the global financial crisis and subsequent introduction of QE and other new, unconventional and powerful monetary tools means that central banks now intervene much more directly in the market than in the past. This has happened particularly through their corporate security purchases.

This has inevitable distributive – and therefore political – effects that the ECB and SNB seek to downplay and depoliticise through their claim of market neutrality. But these purchases are not and cannot be neutral. This effort serves mainly to present them unrealistically and to obfuscate their distributive consequences.

The paper ends by examining the ethics of unconventional monetary policy. It finds that central bank efforts to depoliticise corporate security purchases reduces the potential for wider deliberation and accountability with undesirable democratic, social and environmental consequences.

This page was last updated April 26, 2021

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