By Michel Santi, Economist.
For three years, major central banks have been incurring losses from their unconventional monetary policies. While these losses do not threaten their solvency, they reveal a deeper transformation: the end of the illusion of a neutral and invisible monetary technocracy, and the return of money as a fully political object.
The return of politics to finance
There are moments when finance stops being technical and becomes political again. We are in such a moment.
For three years, a reality long relegated to accounting footnotes has emerged in the center of the debate: Western central banks are accumulating losses.
Not mere insignificant losses or bureaucratic entries, but the scars of a decade of unprecedented monetary experiments. The Federal Reserve, the ECB, the Bank of England, the Bank of Japan, and the Swiss National Bank now bear the marks of a historic gamble – the attempt (with good intentions) to abolish the economic cycle through monetary creation.
The legacy of the era of easy money
During the pandemic, they massively bought bonds at ridiculously low interest rates, convinced that inflation would remain contained. They flooded the markets with liquidity, suppressed yields, and put states in an almost narcotic dependency on free money. Then inflation came back. Brutal. Persistent. Humiliating for institutions that had declared it temporary.
What was meant to protect the system now turns against it: the bonds accumulated during the era of easy money are losing value, while to counter inflation, central banks generously reward bank reserves. The rescue architecture has turned into an accounting trap. A paradoxical mechanism has been set in motion: paying dearly for liabilities while earning little on assets.
Losses without immediate financial danger
Yet, these losses do not pose a financial danger in the strict sense because a central bank cannot be equated with a private institution subject to conventional solvency constraints. It issues currency, can hold assets to maturity, and has a horizon that no other actor enjoys. However, reducing the issue to these technicalities misses the essential point, as these losses can become politically corrosive.
The subtle weakening of independence
In this case, when they alter the balance of power between central banks and governments. For decades, monetary authorities have proven to be profitable institutions, returning substantial profits to public treasuries. The disappearance of these flows and the theoretical prospect of fiscal support transform the perception. The central bank moves from being a source of income to being an implicit constraint on public finances. And any budgetary restraint eventually calls for a political review.
This is how independence, a cardinal principle of monetary credibility, finds itself weakened not by a frontal attack but by a slow reconfiguration. A deficit central bank becomes a subject of parliamentary debate, audit, public dispute. Its decisions cease to be purely technical and appear as choices with fiscal and social consequences. The boundary between monetary policy and fiscal policy blurs, along with the myth of technocratic neutrality.
The silent redistribution of monetary policy
This fiction has become untenable. Since the global financial crisis, the central bank no longer acts solely on the general price level. It influences asset prices, private balance sheets, intergenerational distribution, and risk distribution. It is undeniable: asset purchase policies have supported financial and real estate wealth. Low rates have favored borrowers and penalized risk-free savings. Bank reserve remuneration has stabilized bank balances. Purchases of public debt have facilitated fiscal action. In other words, monetary policy silently redistributes, but profoundly.
Towards an acknowledged repoliticization
The current losses of central banks are not evidence of an imminent collapse, but a symptom of a historic mutation in monetary capitalism. They reveal the end of the illusion of a monetary technocracy capable of acting massively without political consequences.
Central banks have not lost the battle against inflation, but perhaps the privilege of invisibility. This may indeed be the true turning point of our monetary regime: the moment when money becomes, once again, a fully democratic question.
(Michel Santi is a macroeconomist, specialist in financial markets and central banks, and writer. He publishes at Editions Favre “A Levantine Youth,” Preface by Gilles Kepel. Follow him on Twitter.)
