Monetary policy and institutions are far from exempt from political influences. In this paper, we analyze monetary institutions not as being run by either benevolent technocrats or a wealth-maximizing Leviathan, but as the outcome of competition between interest groups trying to capture wealth transfers. We argue that while interest groups gaining from specific monetary policies and institutions can easily identify themselves, losers often cannot. As a result, losers have a more difficult time fighting back, and both the organization of money production and monetary policy are shaped by political competition between rent-seekers. We use our framework to analyze modern developments in monetary policies and institutions, namely (1) the Fed’s reaction to the 2007 financial crisis, (2) the Fed’s reaction to the COVID crisis, and (3) the establishment and development of the euro.
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