Monetary Trust and the Politics of Central Bank Transparency

Monetary theorists – be they economists or sociologists – routinely refer to trust a necessary condition for the existence and stability of money. But what does it mean to say that people have trust in money? The first step towards an answer is to take into account the fact that the institutional architecture money is poorly understood by most money users. Building on the work of, among others, Geoffrey Ingham, the paper argues that monetary trust requires the institutional underpinnings of the financial claims circulating as money to be ‘naturalised’, and thus rendered invisible. Developing this argument further, the paper describes the naturalisation of contemporary credit money in terms of a clearly circumscribed and thus identifiable mythology – the illusion of non-hierarchical money, the myth of banks-as-intermediaries, and the myth of exogenous money. In other words, money is naturalised as a quantity under the direct control of the central bank. During times of financial stability and low inflation, this image fosters monetary trust, thus playing into the hands of the central bank. With the monetary base expanding as a result of quantitative easing, however, the notion of a tight link between outside and inside money has had the opposite effect on monetary trust. Episodes from recent monetary history serve to make this argument empirically palpable.