Central banks are back in the dock | Barry Eichengreen

Compromising independence to enhance political accountability would be like throwing the baby out with the bathwater. They must stay free

On 11 November 1997, the Bank of England took a big step towards independence, courtesy of the second reading in the House of Commons of a bill amending the Bank Act of 1946. The bill gave legislative affirmation to the decision, taken by the then-chancellor of the exchequer, Gordon Brown, to free central bank operations from governmental control. This was a landmark event for an institution that had been under the yoke of government for a half-century. It symbolised how the need for central bank independence had become conventional wisdom.

Now, however, this wisdom is being questioned, and not just in the UK. So long as inflation was the real and present danger, it made sense to delegate monetary policy to conservative central bankers insulated from pressure to finance government budget deficits. Today, in contrast, the problem is the opposite, namely the inability of central banks to raise inflation to target levels.

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