And institutional investment can help build public goods and flatten otherwise fat tails.”15 Trust and social capital One common thread that enables all institutions to work is trust. Without the trust of the public that it serves, an institution will struggle to function, to be effective, and, ultimately, to persist.
Institutional trust “is a key element of a resilient society and is critical for implementing effective policies, since public programmes, regulations and reforms depend on the co-operation and compliance of citizens”.16 Why is this important for central banks? Kenneth Arrow in 1972 explained that “virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time.