As Fed Tapers, More Central Bank Independence Needed

Ryan Olson /

This week finance ministers and central bank officials from around the world will converge on Washington for the spring meetings of the World Bank and the International Monetary Fund. Discussions of monetary policy normalization are leading this year’s expansive schedule.

One notable item missing from the agenda is discussion of a worrying trend among the world’s advanced and emerging economies: diminishing central bank independence.

Over the past half-decade, leaders around the world have been criticized for perceived attempts to undermine the independence of their countries’ central banks. For instance:

All of these moves are worrying. An independent central bank prevents lawmakers from monetizing fiscal policy by printing money to fund deficits. Political interference can also encourage easy money at election time. Actions like this can lead to runaway inflation and government spending.

With the Federal Reserve continuing its taper, world monetary policy is sailing into uncharted waters. Policymakers gathered in Washington this week should take note.

Central bank independence is vital to long-term economic stability. Interfering with such independence at a time of global monetary policy uncertainty could exacerbate a global hangover from the Fed’s easy money. The world needs central banks that respond to market realities, not political ones.