NCPA - National Center for Policy Analysis

Are Central Banks Independent?

November 17, 1998

Some analysts wonder how free central banks are from political pressure -- a pressure to inflate the currency.

  • Germany's Bundesbank is under pressure to cut interest rates and live up to "its responsibility for economic growth" -- despite the fact that it has always seen price stability as its major role.
  • Russia's central bank is printing somewhere between 55 billion and 130 billion new rubles, which some fear could drive inflation to 200 percent.
  • The Japanese government ignores broad economic reforms while using the central bank to pump $500 billion worth of yen into its banks.
  • Thailand's central bank-induced inflation created a real estate bubble that burst, causing the International Monetary Fund to loan Thailand $18 billion.

Thanks to what one analyst called "reckless lending," an economic slowdown can be turned into a depression, as has happened in Indonesia and Russia. According to another, the only way a country can really end a recession is by cutting taxes and spending, but politicians, and the central banks they influence, don't want to surrender control. Central banking, in such cases, merely becomes central planning.

Source: Michael Chapman, "Central Bankers Under Attack," Investor's Business Daily, November 17, 1998.


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