Monetary Policy Processes in Postcommunist Romania

Abstract

This thesis has a twofold aim. It first argues that monetary policy is inherently political because it involves struggles over meaning. It modifies Niebyl’s (1946) conceptual approach with an explicit attention to meaning, advancing a theory/ policy discourse/institutional practices nexus for exploring central banking. It shows that the emergence of leading representations of monetary processes (in Ricardo, Keynes and Friedman) involved discursive struggles during periods of crisis to assign meaning to problems and establish dominant interpretations. Politics and power were not grafted onto policy but were ontologically constitutive of it, shaping specific institutional configurations and practices. Second, this conceptualization is taken to a case study: a critical scrutiny of the role played by the central bank of Romania (NBR) in the reconstitution of the postcommunist Romanian economy as neoliberal economy from 1990 to 2008. The thesis asks what does the central bank do when the state, defined through its central planning legacy, ‘retreats’ from the market? The usual account explains policy success as direct result of commitments to neoliberal (monetarist) principles prescribed by international policy advice. Before 1997, neocommunist governments politically validated a communist legacy: soft budget constraints in the (state) productive sector. Politicized monetary policy decisions produced repeated crises. Afterwards, neoliberal governments gradually institutionalized an autonomous economic sphere, allowing an objective formulation and implementation of stability-orientated monetarist policies. The thesis challenges this orthodoxy. It argues against the attempts to erase politics from monetary policy processes that the above account articulates. Instead, drawing on critical conceptualizations of neoliberalism in its shifting forms, the period under analysis will be (re)interpreted as an ongoing process of neoliberalization, with the central bank an important actor in it. Indeed, the narration of crises identified the NBR as an essential instrument of institutional change and neoliberal ‘policy-making’. Monetarist narratives (ideologically) legitimized neoliberalism and effectively enacted neoliberal principles of monetary governance in the central bank. Thus, before 1997, the central bank functioned as a key vehicle of the neoliberal attack on the state’s capacity to craft economic reform. Since neoliberal institutions (also) take time to build, expanding policy repertoires outside the monetarist range invested the central bank with increasing powers to respond to structural and institutional resistance to neoliberal logics, arising from both communist legacies and ongoing political struggles. After 1997, the central bank’s rationality gradually changed to a constructive phase, normalizing an extralocal mode of economic governance whose distinguishing features will be identified. Institutional practices reconstructed the relationship between money, foreign exchange and treasury markets, subjugating liquidity management to the requirements of financialized accumulation. With financial stability increasingly tied into transnational actors’ choices, the NBR adopted inflation targeting. Nevertheless, inflation-targeting’s promise of stability operated to sideline the destabilizing nature of normalized neoliberal practices of monetary management, clearly evoked by the 2008 crisis. The thesis concludes with policy implications and an agenda for future research.