Credibility, Transparency and Intersubjectivity in Global Financial Governance.

The paper develops theoretically and analytically from a constructivist perspective the relationships between trust, authority, confidence and financial governance in monetary affairs in the era of fiat money. The literature on monetary economics is replete with references to the criticality of the “credibility” of central banks to ensure price stability at all costs. This paper explores the network of social relations by which that credibility is constructed. The paper explores the sources of this central bank authority, and the relationship between trust, authority and confidence in independent central banks. The relationship between authority and governance in monetary affairs is then developed. The sources of authority and financial governance are found to be shared between governments, central banks, and financial markets.Miscommunication between central bank intentions (due to an absence of intersubjectively shared social understanding regarding the meanings of central bank statements and policy actions) and financial market actors can result in a failure of market actors perceptions and expectations of central bank intentions regarding the structure of long term rates. These intersubjective disconnects can endanger the goal of price stability. Market actors rely upon “intersubjective expectations” rather than “rational expectations” to coordinate market action, and evidence is presented that the predictions of rational expectations theory regarding bond market behavior fail rather dramatically when tested empirically.Thus central bank transparency and communications strategies emerge as critical components of the developing structure of monetary governance. Coupled with moves toward universalizing central bank independence, the move toward universalizing central bank transparency is a critical structural element in generating this pair of institutional mechanisms as a new “nominal anchor” for the international monetary system in the era of fiat money and capital mobility. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]