Communication as a Tool: Myth and Reality of Unconventional Monetary Policy

For most of the 21st century, the world’s largest central banks have been buying large quantities of government debt. From the 1930s-1970, identical operations formed the financial backbone of public sector expansion. ‘Keynesian’ economic policies required monetary authorities to monetise deficits and manage heavy debt-loads via large-scale interventions in sovereign debt markets. That type of monetary-fiscal backstopping became anathema to models of central bank independence built on the dominance of monetary authorities over fiscal agencies and an inflation-targeting regime operationalised through interest-rate setting. Its resumption forced central banks to propagate a theoretic nomenclature (‘unconventional policy’, ‘quantitative easing’, ‘transmission-mechanism protection’) to justify their institutional independence, obscure their role as quasi-fiscal agencies, discourage government largess and emphasise the private-market orientation of their policies. This article analyses the communication strategies used by North Atlantic central banks (US, UK and EU) to re-package and explain debt monetisation techniques as inflation-targeting monetary policy from the Financial Crisis to the Pandemic. An evaluation of archival documents, central bank legal/policy justification for, and deficit-facilitating effects of, debt purchase programs reveal central banks’ role in propagating an ideational shift in macroeconomic policy, designed to minimise perceived risks of fiscal expansion while bolstering their independence. Those communications techniques came under the heaviest strain during the COVID-19 Pandemic, but were returned to during the ‘Sterling Crisis’ of 2022. The implications of the findings of this study suggest that central banks are aware that their policies may have distributional consequences but they are keen keep their competences and remain independent.