Rethinking Central-Bank Independence

How can central-bank independence be reconciled with the modern need for political accountability in times of unconventional monetary policy and increased financial-oversight powers? The world experienced a startling convergence toward central-bank independence during the 1990s, as interests and ideas combined to make the notion into a virtually uncontested institutional norm. The ensuing boom years added credibility to the view that technocrats were superior to politicians in dealing with monetary affairs. The global financial crisis, however, exposed central bankers as powerful political actors rather than mere technocrats. Moving far beyond their narrow mandates, they became more overtly distributive and increasingly politicized agents. While unconventional monetary policy and financial supervision offer short-term benefits, they create future uncertainty and raise questions of political accountability. This paper argues that central banks will need to channel contestation over monetary policy into a more conventional political arena if they are to maintain their democratic legitimacy.