Introduction
It’s an honour to give the 24th Sir Leslie Melville Lecture.
My theme today is trust. Trust is central to all of our lives. We trust our families and friends. We trust the food we eat. We trust companies with our personal data. We trust governments to keep us safe.
But few rely on trust as profoundly as central banks. And that’s because money itself is based entirely on a social contract. Banknotes in our wallets or deposits in our bank accounts have no intrinsic value beyond the monetary realm. Their value rests on trust that others will accept them tomorrow at much the same worth. And that trust, in turn, relies on confidence that central banks will keep prices stable. So trust isn’t just a source of legitimacy – it’s integral to how monetary policy actually works.
That trust must be earned. And the decades following the 1980s were good times for central banks around the globe, as flexible inflation targeting delivered consistently low and stable inflation alongside rising real incomes. But more recently, and particularly since COVID, things have been rockier: persistent above-target inflation has marred that hard-won track record. The broader climate of trust towards public bodies has deteriorated. And we’ve entered a ‘VUCA’ (Volatile, Uncertain, Complex and Ambiguous) world, amid a fusillade of shocks from tariffs, wars, geopolitical tensions, pandemics, and technological and environmental change. That means inflation is more likely to be pushed off target; economic forecasts are more likely to be wrong; and policy trade-offs get uglier.