The Fed, seen globally as a template for independence, is always very sensitive to the mood on Capitol Hill. Despite the howls of indignation that arise whenever someone suggests even a modicum of change, there’s nothing untouchable about independence. The Swiss National Bank is still partly held by private investors.Įven the most credentialed inflation fighters ultimately depend on the political class for their power. ![]() The Bank of England wasn’t owned by the state until 1946. In and of itself, this is perfectly reasonable: central bank decisions carry enormous consequence and are done in the name of the public. The African National Congress, which has held power since the end of Apartheid, has also sought to nationalize the Reserve Bank. In South Africa, the ruling party wants the central bank to play a more active role in fostering jobs and growth. Is this somehow less desirable in an emerging market? Hardly. Ideas recently floated in Jakarta, like adding a jobs aspect to Bank Indonesia’s remit, seem pretty benign the Federal Reserve is charged with full employment as well as price stability. The problem is that it often does, and advocates of sensible, evolutionary change get shouted down - along with enthusiasts seeking to remake the system in a more pernicious manner. That shouldn’t get in the way of reasonable suggestions. It’s doubtful that times have changed so much to justify abandoning the core of the current hard-won model. Will other countries be as lucky, and will the debate be confined to EM? An earlier skirmish in Indonesia left the existing regime largely intact. This is the terrain on which a struggle for policy direction is playing out in Brazil and South Africa. Not flawless, but more feasible than some of the alternatives. A prior generation of leaders figured out, albeit under pressure from markets and the International Monetary Fund, that some kind of independent agency with a numerical inflation target was the least bad way to go. If proponents seeking to clip central bank power don’t pick their shots correctly, the course of economic life in their nations stands to be reshaped, and probably for the worse. Politicians and academics who want a refit of monetary affairs ought to be careful how - and where - they tread. Proposals that might conceivably rein in autonomy, or nibble around the edges, have come from countries depicted as comers in global economics. This is no crackpot fringe seeking a return to the gold standard or urging interest rates be placed entirely in the hands of elected officials. Is central bank independence only for the good times? This is the uncomfortable question that iconic emerging markets are pushing to the fore. ![]() The central bank is scheduled to announce its monetary policy decision on June 23. The Bank Indonesia headquarters in Jakarta, Indonesia.
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