Transparency is a key element of this social accountability. As public institutions, central banks should be held properly accountable to lawmakers and to society. The continuing discussions about central bank independence, in light of post-crisis realities, highlight the fact that central banks do not and should not operate in a vacuum. Independence and Accountability: Two Sides of the Same Coin This underscores the clear priority that central banks worldwide now place on protecting against threats to their independence. ![]() In one-fourth of IMF staff visits to provide technical assistance to central bank staff, the discussions include issues related to central bank independence, in one form or another.Īnd most of that attention has been focused on strengthening their independence in the context of ensuring effective monetary policy and modernizing their operations. Indeed, the overall direction and composition of IMF work with country monetary authorities confirms the struggle. In some quarters, concerns about the expanded activities of central banks led to skepticism about the necessity or the appropriate degree of central bank independence. In some cases, governments tasked them with new or additional financial stability functions on top of their mandate of price stability. Since the global financial crisis, many central banks pursued strategies that led to significant expansions of their balance sheets. We’ve really seen terrible economic outcomes in countries where central banks have been subject to political pressure.” This political interference could undermine central banks’ goals-such as stable inflation over time and, in some countries, maximum employment-and potentially create long-term risks to economic and financial stability.īridging independence and accountability is the notion of transparency, a vital component allowing independent central banks to prove their effectiveness and public accountability.įormer Federal Reserve Chair Janet Yellen cautioned that “sometimes central banks need to do things that are not immediately popular for the health of the economy. Generally, the laws tend to recognize that if politicians manipulate monetary policy to bolster their pre-election popularity, their prioritization of short-term political gains could invite long-term pain for the economy, in the form of higher inflation or even hyper-inflation. Indeed, research based on the IMF’s database of central bank legislation shows that most nations’ central bank laws contain “anchors,” in one form or another, for central bank independence. Numerous studies have validated the importance of central banks’ independence. From Europe to the Americas, from Africa to Asia, restive voters and their governments demand greater accountability and some now question central banks’ once-sacrosanct independence. ![]() But a decade after central bankers became pivotal actors in the global financial crisis, central banks around the world are striving to fulfill their mandates under difficult circumstances. In the grand scheme, central bank independence is relatively new-the idea gained steam in the 1970s-but has proven a valuable, stabilizing force for countries seeking politics-free monetary policy decisions. Though it would eventually come-some 300 years later-when, in May 1997, the British government gave the Bank operational independence over monetary policy, to take effect a year later. As a private company, its independence from the government was not then contemplated.
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