The Political Cost of Free Money

Over the past three years, major central banks have accumulated losses stemming from their unconventional monetary policies. While these losses do not threaten their solvency, they reveal a deeper transformation: the end of the illusion of neutral and invisible monetary technocracy, and the return of money as a fully political issue.

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 accounting footnotes has moved to the center of 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, and the Swiss National Bank now bear the marks of the same historic wager — that of having (with good intentions) sought to abolish the economic cycle through money creation.

The legacy of the era of free money

During the pandemic, they massively purchased bonds at derisory yields, convinced inflation would remain contained. They flooded markets with liquidity, compressed yields, and installed governments in an almost narcotic dependence on free money. Then inflation returned. Brutal. Persistent. Humiliating for institutions that had declared it transitory.

What was meant to protect the system has turned against it: the bonds accumulated during the era of free money lose value while, to fight inflation, central banks now pay dearly to remunerate bank reserves. The rescue architecture has turned into an accounting trap. A paradoxical mechanism has been set in motion: paying dearly on liabilities while earning little on assets.

Losses without immediate financial danger

Yet these losses do not constitute a financial danger in the strict sense, because a central bank cannot be equated with a private institution subject to traditional solvency constraints. It issues currency, can hold assets to maturity, and operates with a horizon no other actor enjoys. Reducing the issue to these technical facts, however, misses the essential point, as these losses may become politically corrosive.

The subtle weakening of independence

Specifically when they alter the balance of power between central banks and governments. For decades, monetary authorities proved profitable institutions, remitting substantial earnings to public treasuries. The disappearance of these flows and the prospect, even theoretical, of fiscal support changes perceptions. The central bank ceases to be a source of revenue and becomes an implicit constraint on public finances. And every budgetary constraint sooner or later invites political scrutiny.

Thus independence, the cardinal principle of monetary credibility, is weakened not by frontal attack but by gradual reconfiguration. A loss-making central bank becomes an object of parliamentary debate, audit, and public contestation. Its decisions cease to appear purely technical and instead look like choices with fiscal and social consequences. The boundary between monetary and fiscal policy blurs, and with it the myth of technocratic neutrality.

The silent redistribution of monetary policy

This fiction has in fact become untenable.
Since the global financial crisis, central banks no longer act solely on the general price level. They influence asset prices, private balance-sheet structures, intergenerational distribution, and risk allocation. It is undeniable: asset purchase programs have supported financial and real estate wealth. Low rates favored borrowers and penalized risk-free savers. The remuneration of reserves stabilized bank balance sheets. Public debt purchases facilitated fiscal action. In other words, monetary policy redistributes silently, but profoundly.

Toward an openly acknowledged repoliticization

The question today is less one of subordination of central banks to political power than of their lucid and voluntary repoliticization.
Repoliticizing the central bank does not mean subjecting it to electoral cycles, nor renouncing the operational independence essential to price stability. By recognizing and assuming their inherently political task, central banks would explicitly acknowledge the distributive trade-offs they already make. Naming winners and losers, drawing attention to the social effects of unconventional tools, and opening deliberation on decisions that now exceed the purely monetary sphere. Yes, absolutely — because in democracy, it is not redistributive choices that pose a problem, but their invisibility.

The end of the neutrality myth

The irony of our time is clear: the more central banks act to stabilize the economy, the more they politicize their own decisions. The more political these decisions become, the more the claim to neutrality undermines their legitimacy. The real risk is therefore neither accounting nor financial; it is narrative and institutional. An institution that redistributes without acknowledging it breeds distrust. One that assumes its trade-offs may, paradoxically, strengthen its independence.

The democratic turning point of money

Current central bank losses are not proof of imminent collapse, but the symptom of a historic mutation of monetary capitalism. They reveal the end of the illusion of a monetary technocracy able to act massively without political consequences.
Central banks have not lost the battle against inflation, but clearly the privilege of invisibility. This may be the true turning point of our monetary regime: the moment when money once again becomes, fully, a democratic question.