Undoing the state-market boundary: central banks and the permanent crisis of liquidity management
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2025-07-04
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en
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How should we understand the relationship between the central banks of developed market economies and financial markets after the great financial crisis? Central banks have drastically grown in importance. They have acquired and mobilized new resources after the crisis in the form of growing balance sheets and standing backstop facilities for shadow banking. However, these resources are mobilized to stabilize certain financial markets. Since the financial crisis central banks have fought off endemic market liquidity events with large-scale asset purchases and backstop facilities, turning them into permanent crisis managers. This entanglement with financial markets did not start in 2008, before the crisis central banks were already involved in constructing the financial infrastructures that would become dysfunctional. Did central bank power really grow if the reason why it acquired new resources was to backstop financial markets? And what are the repercussions of the greater entanglement of central banks and financial markets for the legitimacy of both? This paper connects both these questions by arguing that the function of financialized central banks in stabilizing dysfunctional markets undoes the state-market boundary, politicizing market outcomes and the institution itself. This poses challenges to central banks’ legitimacy and competence in the future.
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Faculteit der Managementwetenschappen