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Thursday, June 18, 2009

What involvement should governments have in central banks?

Samuel Gregg of the Acton Institute wrote a short but thought provoking article that gives us a peek into the issue of government vs. central bank.

"One of the financial crisis’ long-term effects will be to raise questions about central banks’ ability to maintain an independent monetary policy during periods of economic stress: that is, precisely when such independence is most important. Of course, no institution can be rendered completely immune from political and public pressures. But over forthcoming months, central banks are going to be faced with making decisions unlikely to please governments and legislatures worried about being reelected....

"The bigger political question, however, is the place of central banks in democratic political orders. Insulating central banks from excessive political influence reflects recognition of the truth that even in a democracy there are many public-policy decisions that should not be made by legislative or popular votes. Most democracies, for example, embody constitutional limits on the ability of governments and legislatures to interfere with the judiciary’s operations. This is usually derived from awareness that the common good normally requires some separation of powers in order to prevent excessive centralization of power."

Continue Samuel Gregg's "Can Central Banks Be More Insulated from Politics?"

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