Ed Balls: Bank Of England Should Give Up Some ‘Political Independence’ To Bolster Public Support

 “We do argue for a more nuanced approach to central bank independence, with political accountability in terms of mandate-setting and appointment of officials, and oversight of wider financial stability powers.

“Nonetheless, we reiterate that the case for operational independence in both monetary and macro-prudential policy is strong: to retreat on this now would be a serious mistake.”

The paper points out that Jeremy Corbyn’s plans for a ‘People’s QE’ – to force the Bank of  England to fund public projects – is just one example of creeping threats to the independent bank model.

It also highlights that in the US, Congress only narrowly rejected Senator Rand Paul’s “Audit the Fed” plan to curtail the Federal Reserve’s independence. Governments in Brazil and India have also recently tried to curtail the independence of their central banks.

Balls and his colleagues say that while day-to-day operational running should be left to officials, “crisis management” is one area where politicians should get involved.

“The government should lead crisis management efforts because this area is inherently political and contentious, it is difficult to codify ex-ante processes and accountability mechanisms and, finally, it involves the coordination of multiple agencies.

“A committee, chaired by the government, should direct crisis management and the government should have the power to compel actions by agencies that are otherwise independent in normal non-crisis times.

“While the central bank may have responsibility for the resolution of failed financial institutions, the government should participate in decision-making and have joint sign-off over the final decision.”

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