Central Banks’ Independence Defended

This story appeared in Bank Digest.

In a speech before the Shadow Open Market Committee in New York City, Federal Reserve Board Governor Kevin Warsh discussed the “increasingly questioned foundation of our economic system, the independent status of central banks.” Warsh noted that “The mantra of Fed independence is not some throw-away line that seeks to absolve the central bank of accountability. To the contrary, institutional credibility demands transparency so that the Fed’s performance of its responsibilities can be judged on the merits. But, the call for central bank independence can be misunderstood, its defense misconstrued, its threats dismissed, and the consequences of its breach underestimated.” Warsh concluded that “Now more than ever, market participants are watching the relationship between central banks and their governments. They are keenly gauging whether changes in conditions, policies, or practices pierce the veil of central bank independence. Central bankers the world over must demonstrate that we are worthy of this moment, and will be steadfast protectors of our institutions’ credibility. That means respecting our important but circumscribed role in the conduct of policy, and performing our mission with competence and consistency.”