When the times change, the customs also change. In the time that we are witnessing, it is difficult to give up the impression that we are crossing the border of a world we have known so far and embarking on in a new era, with customs and norms whose “contents only come to light and, according to recent experience, shape themselves.” Many things change, so the institutions are at least prone to change. About central banks is also their independence. Still, who would say that this will happen so fast !?
The independence of central banks is a relatively new phenomenon. They struggled for that precious status during the period called “Great Moderation”, during which significant volatility of the economic cycles was significantly reduced, as well as a pronounced fall in global inflation, which, among other things, was due to the adequate monetary policies authorities. This, on the other hand, allowed central banks to focus on price stability as their primary goal. In this way, a policy of targeted inflation was put in the main plan, which further enabled even greater operational autonomy of central banks.
However, as always, there is a dark side of the story: the consequence of this policy is that the monetary authorities generally ignored the formation of large bubbles in stock markets and other financial assets, which further led to the growth of risk and instability in the banking sector. The current crisis, initiated by the fall of Leman, is the most obvious example where the cracking of such bubbles can lead. Although with fewer wanderings, central banks responded quickly to the current crisis, they were forced to abandon the targeted inflation target policy and venture into the unexplored space of unconventional measures, increasing the uncertainty surrounding the exit strategy.
Today, central banks are asked to stimulate economic growth, support the stability of the financial system, and reduce the costs of state funding, and sometimes ensure its solvency, in the context of the crisis and rising demand for energy and raw materials by high-growth countries, which increases the risk of new price increases. As a result, central banks are facing an almost indolent dilemma, which requires a fundamental redefinition of their goals and roles. The independence of these institutions seems to be the first victim to be brought in this new time, because, as it stands out, support for growth in GDP, employment and financial stability requires primarily the decisions of those who, unlike the bankers, have, at least, formal, political legitimacy. This is especially evident in the context of a highly aggressive monetary policy, which will have significant consequences for both countries as a whole and for each individual within them. This, as well as other aspects of the inevitable redefinition of the concept of independence of central banks, was made by former central bank governor Mario Bleher in an excellent text on the prospects for the independence of these institutions.