ZURICH, Switzerland — Central banks are not sovereign principalities, and their governors are not sovereign princes.
While central bank independence has been essential to effective policymaking in recent decades — giving monetary authorities the political cover to pursue necessary but potentially painful measures when conditions demand — the limits of the principle are almost certain to become clearer in the coming years.The reason is not that there have been catastrophic monetary policy mistakes or that governments want to manage monetary policy themselves.
Few central banks can match this stellar record, and yet four government ministers sit on the MAS' board, and there is little doubt that the Singaporean government can control monetary policy if it so wishes. Singapore has achieved consistently low, stable inflation without a robust regime of central bank independence.What matters most for price stability is the central bank's ability to set interest rates and other policy levers as it sees fit.
Limits Of Central Bank Independence
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