By Michel Santi, Economist (*)
For three years, major central banks have been accumulating 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 currency as a fully political object.
The return of politics in finance
There are moments when finance ceases to be technical and becomes political again. We are there.
For three years, a reality long relegated to the accounting sidelines has emerged at the center of the debate: Western central banks are accumulating losses.
Not trivial losses, nor mere bureaucratic entries, but the scars of a decade of unprecedented monetary experimentation. The Federal Reserve, the ECB, the Bank of England, the Bank of Japan, the Swiss National Bank now bear the marks of a historical bet – that of having (with good intentions) wanted to abolish the economic cycle through monetary creation.
The legacy of the era of free money
During the pandemic, they massively bought bonds at negligible rates, convinced that inflation would remain contained. They saturated the markets with liquidity, compressed yields, and ensnared states in an almost narcotic dependence on free money. Then inflation returned. Abruptly. Persistently. Humiliating for institutions that had declared it transitory.
What was meant to protect the system now turns against it: the bonds accumulated during the era of free money are losing their value, while to combat inflation, central banks are generously rewarding 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 classic solvency constraints. It issues currency, can hold its assets to maturity, and has a horizon that no other actor benefits from. 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, channeling substantial profits to public treasuries. The disappearance of these flows and the theoretical prospect of fiscal support transform perceptions. The central bank ceases to be a source of income to become an implicit constraint on public finances. And any fiscal constraint inevitably calls for political scrutiny.
Thus, independence, a cardinal principle of monetary credibility, is weakened not by a frontal attack but by a slow reconfiguration. A deficit central bank becomes a subject of parliamentary debate, audit, and public challenge. Its decisions cease to be purely technical and begin to emerge as choices with fiscal and social consequences. The line between monetary 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, the structure of 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. Reserve remuneration has stabilized bank balance sheets. Public debt purchases have facilitated fiscal action. In other words, monetary policy silently redistributes, but with depth.
Towards a conscious re-politicization
The question today is not so much about central banks submitting to political power but about their conscious and voluntary re-politicization.
Repoliticizing the central bank does not mean subjugating it to electoral cycles or renouncing operational independence, which remains essential for price stability. By recognizing and then assuming their inherently political task, central banks will explicitly acknowledge the distributive trade-offs they are already making. Naming the winners and losers, being attentive to the social effects of their unconventional instruments, and opening deliberation on decisions now transcending the monetary sphere. Yes, absolutely, because redistributive choices are not problematic in a democracy, but their invisibility is.
The end of the myth of neutrality
The irony of our time is this: the more the central bank acts to stabilize the economy, the more it politicizes its own decisions. The more its decisions become political, the more the claim to neutrality undermines its legitimacy. The real risk is not financial or accounting, it is narrative and institutional. An institution that redistributes without acknowledging it fosters distrust. An institution that assumes its trade-offs can paradoxically strengthen its independence.
The democratic turn of currency
The current losses of central banks are not evidence of an imminent collapse, but a symptom of a historical mutation of monetary capitalism. They reveal the end of the illusion of a monetary technocracy capable of massive action without political consequences.
Central banks have not lost the battle against inflation, but they have lost the privilege of invisibility. This may be the real turning point of our monetary regime: the moment when currency becomes fully a democratic question.
(*) Michel Santi is a macroeconomist, specialist in financial markets and central banks, and writer. He publishes at Editions Favre “Une jeunesse levantine,” Preface by Gilles Kepel. His Twitter feed.
