Central Bank Accountability and Independence

Central bank governors and/or directors should be elected through a public vote and not appointed by other arms of government. The CB should also be independent of the legislative body if it adheres to its targets. Central banks should set clear policy targets. When the central bank deviates from its economic objectives for a defined period of time an established parliamentary body can call on governors to explain their actions. If these actions are inappropriate governors can be fired and new governors publicly elected. Limits on how many governors of the board can be replaced per year can be imposed in order to limit uncertainty. Incentives should also be put in place for achieving targets.

A parliamentary committee with no party affiliation could be elected to make CB governors accountable if they don’t perform their objectives. This committee may also have other responsibilities possibly relating to regulation of financial markets, auditing or banking.

It may be worth considering if beneficial to require a basic level of monetary education or experience for voters to be permitted to vote for central bank governors. Such an education could be provided at no cost possibly at the secondary level (high school) of education.

The CB may fund itself by printing all the money necessary to underpin its operations in a transparent and accountable manner or it may impose an annual fee on citizens. This fee could be deducted from the heli drops the public receives so that people don’t pay fees they just receive an small reduction in the amount of money received through the heli drop.

Monetary Policy which includes managing the nation’s money and payments system is an important task that requires its own dedicated institution. The monetary authority should be recognized as a separate arm of government and be fully independent from the executive arm of the government much like the judiciary or legislature. Conflicts of interest may arise when the central bank loses its independence. Political interference of monetary policy by the executive or legislative arm of government will adversely affect its performance. Under an independent central bank monetary policy can’t be manipulated ahead of elections, or to support political aims. Money system should not be captive to politicians.

If other arms of government also have to perform monetary policy it will concentrate too much responsibility under the executive or legislative arm of government and increase the amount of tasks needing to be managed by a these entities. This will confuse or reduce the focus required to effectively manage the monetary and payments system which will result in inferior management outcomes. For example sometimes the government may invest in unnecessary infrastructure just to increase the money supply, not because the infrastructure is needed. Government should focus on fiscal policy and regulations in order to create most efficient economic system. Central bank should manage monetary policy in order to create most balanced, stable and efficient monetary system to underpin the efficient functioning of real economy. Specialization makes for more effective policy making.

Less confusion or obfuscation and greater accountability will prevail if monetary authority is solely responsible for monetary policy.

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