Monday, 15 July 2019

The Conversation/Danny Bradlow: Why central banks need to take human rights more seriously

The Conversation

Edition:

Available editions
Africa

    Job Board

    Become an author
    Sign up as a reader
    Sign in

The Conversation
Academic rigour, journalistic flair

    Arts + Culture
    Business + Economy
    Education
    Environment + Energy
    Health + Medicine
    Politics + Society
    Science + Technology
    In French

Why central banks need to take human rights more seriously
July 14, 2019 12.51pm SAST •Updated July 14, 2019 3.01pm SAST
Author

    Danny Bradlow

    SARCHI Professor of International Development Law and African Economic Relations, University of Pretoria

Disclosure statement

Danny Bradlow's SARCHI Chair is funded by the National Research Foundation.
Partners

University of Pretoria

University of Pretoria provides funding as a partner of The Conversation AFRICA.

The Conversation is funded by the National Research Foundation, eight universities, including the Cape Peninsula University of Technology, Rhodes University, Stellenbosch University and the Universities of Cape Town, Johannesburg, Kwa-Zulu Natal, Pretoria, and South Africa. It is hosted by the Universities of the Witwatersrand and Western Cape, the African Population and Health Research Centre and the Nigerian Academy of Science. The Bill & Melinda Gates Foundation is a Strategic Partner. more
Republish this article

Republish our articles for free, online or in print, under Creative Commons licence.
The Central Bank of Kenya has financial inclusion in its stewardship of the financial system. Shutterstock

    Email
    Twitter11
    Facebook9
    LinkedIn
    Print

Many central banks are rethinking their approach to the environmental and social impact of their operations. This is because their decisions can affect access to housing, healthcare, education, work, to adequate food and water and the security of their pensions.

For example, 36 central banks and banking supervisors, participate in the central bank and supervisors network for greening the financial system. The list of central banks includes Australia, Canada, China, England, France, Germany and Mexico.

The network’s focus is on climate change. But this pushes them to pay more attention to other environmental and social considerations.

The precise mandates of central banks vary. But one thing they all have in common is responsibility for maintaining price stability. Their primary policy tools for achieving this objective are interest rates, the capital and reserve requirements for banks, and trading debt instruments in financial markets.

Central banks also act as a lender of last resort to the banking system or more generally to the financial sector. They regulate and supervise the activities of banks and other financial institutions. They manage the country’s payment system, maintain financial stability and manage the country’s foreign exchange reserves. In some countries, the central bank can be given additional responsibilities such as promoting development finance or financial inclusion.

To fully understand the risk that climate poses to price and financial stability, central banks need to consider how changing weather patterns will affect a number of variables. These include food production, migration patterns, and people’s access to food, water, housing, and jobs, and how these, in turn, influence aggregate demand, credit allocation, inflation and government deficits.

In other words, as I explain in more detail in this article, central bankers are being inexorably pushed to reconsider the relationship between central banking and human rights.
The connections

The mandates, powers, and governance arrangements of all central banks are established by law. They must comply with all the applicable law including the constitutional and international legal obligations of their home states. In principle this means that central banks are bound by the international human rights commitments of their sovereigns.

Historically, central banks have been able to avoid dealing with human rights issues. This is because the political leadership determines the price stability goal for the economy and then lets the central bank decide how to meet this inflation objective.

This arrangement suggests that the central bank’s independence is limited to the technical issues relevant to achieving the goal set by the government. In addition, it assumes, at least implicitly, that the social and environmental implications of the country’s monetary and financial goals are the government’s responsibility.

However, in reality central banking is not a purely technical function. For example, the social and environmental impact of its decision to change interest rates will vary depending on how it implements the decision. If the central bank decides to change interest rates through open market operations the social and environmental impacts will depend on which instruments it chooses to trade – and in what proportions. On the other hand, these affects will depend on the decisions of banks if it implements the decision by changing the reserve requirements or the interest rate it charges banks for short term loans.

There are some noteworthy examples. The central banks of Kenya, the Netherlands and the Federal Reserve Bank of San Francisco consider factors such as community development and financial inclusion in their stewardship of their financial systems. And the Dutch central bank now has a mandate to include sustainability in its decision making. The Chinese central bank has been authorised to take climate considerations into account in its monetary decisions.

Central bank operations, therefore, cannot avoid affecting human rights.
The human rights responsibilities

The unavoidable impact of central banking operations on human rights means that central banks have to develop a better understanding of their human rights responsibilities. The applicable law is the starting point. But the relevant law and jurisprudence is unlikely to provide detailed guidance on how central banks should interpret and implement their human rights responsibilities.

A good reference tool for the central bank is the UN Guiding Principles on Business and Human Rights. These principles stipulate that all businesses should have a human rights policy. The policy should be publicly available and should be applicable to all the business’s operations and decision-making.

The Principles also state that businesses should conduct adequate human rights due diligence before and during their decision making and implementation process. This requirement means that they should conduct human rights impact assessments of their proposed operations. They should also take steps to avoid or mitigate the identified adverse human rights impacts.

Central banks will face particular challenges in meeting their human rights responsibilities. Their instrument independence means that their human rights policy will need to be respectful of the central bank’s independence and its mandate.

At the same time, the central bank needs to be cognisant of the fact that its human rights policy may have implications for other state entities and for the country’s political leadership. These considerations complicate but do not render impossible the task of drafting a central bank human rights policy.

Their ability to conduct detailed human rights impact assessments will be complicated by the relative speed and discretion with which they must often operate. This does not, however, make it impossible for them to assess their impact on human rights. Instead, it suggests that central banks need to develop and maintain a sufficiently detailed general and ongoing understanding of the actual impact of their operations on human rights. This is so that they can make informed judgements about the likely effects of their proposed monetary decisions on specific communities.

This disaggregated approach should provide central banks with a detailed and nuanced understanding of how their policies actually affect different sub-groups of their society. By doing this it should enable central banks to determine the true costs and benefits of their policies and actions. This should improve their decision-making.
Conclusion

This analysis demonstrates three key points. First, it is becoming untenable for central banks to avoid incorporating their human rights impacts into their decision-making and operations. Second, a human rights approach offers central banks a new tool for understanding the true costs and benefits of their operations. Third, central banks can meet their human rights responsibilities without compromising the independence they need to meet their monetary and financial responsibilities.

    Sustainability
    Human rights
    Environment
    Central banking
    Global perspectives
    Global Perpectives

    Tweet
    Share
    Get newsletter

You might also like
How South Africa’s rural communities are getting a raw deal from mining
Kenya faces devastating Prosopis invasion: What can be done
Rivalries ahead of Guinea-Bissau’s election raise questions about stability
Food waste: using sustainable innovation to cut down what we throw away
Sign in to comment
0 Comments

    There are no comments on this article yet.
    Have your say, post a comment on this article.

Most popular on The Conversation

    South African probe into corruption awaits a star witness – Jacob Zuma
    Amid mounting abuse claims, Jammeh is unlikely to face justice soon. Here’s why
    How glow of the historic accord between Ethiopia and Eritrea has faded
    How giving young people basic financial skills helps them find jobs
    Resistance and collaboration: Asameni and the keys to Christiansborg Castle in Accra

    Spat over toll roads in South Africa shows poor people don’t count
    How the DRC’s Ebola crisis has led to children dying from measles
    Donor-funded journalism is on the rise in Africa: why it needs closer scrutiny
    Lack of youth services undercuts the gains of South Africa’s child grant
    How digital technologies can help Africa’s smallholder farmers

Expert Database

    Find experts with knowledge in:*

Want to write?

Write an article and join a growing community of more than 86,700 academics and researchers from 2,892 institutions.

Register now
The Conversation
Community

    Community standards
    Republishing guidelines
    Research and Expert Database
    Analytics
    Job Board
    Our feeds

Company

    Who we are
    Our charter
    Our team
    Partners and funders
    Resource for media
    Contact us

Stay informed and subscribe to our free daily newsletter and get the latest analysis and commentary directly in your inbox.
Email address
Follow us on social media

Privacy policy Terms and conditions Corrections

Copyright © 2010–2019, The Conversation Africa, Inc.

No comments: