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  • Jerome Powell was a few months into his job as the Chair of the Federal Reserve when

  • U.S. President Donald Trump complained about the central bank's policies.

  • “I put a very good man in the Fed.

  • I don't necessarily agree with it, because he is raising interest rates.”

  • He's not the only one complaining.

  • Italy, India, Turkey and Argentina are just some of the countries seeing leaders push

  • back against central bank independence - and some are succeeding.

  • In the last few years, we've seen central bankers get fired,

  • resign and have their decisions and motivations questioned.

  • That's led to a number of voices declaring

  • that the independence of these public institutions is under threat.

  • But why do we even care whether central banks are independent or not?

  • It's kind of a long story.

  • Let's go back almost a hundred years for some context.

  • After the First World War, Germany was in a lot of debt and its costs were racking up.

  • Soldiers needed pensions.

  • War widows needed compensation.

  • France and Great Britain were demanding massive reparations.

  • And other countries did not want to lend Germany any money.

  • So Germany's central bank printed more and more money and loaned it to the government,

  • hoping to make up the difference.

  • What they ended up with instead was hyperinflation.

  • All that cash caused prices to skyrocket.

  • At the height of the crisis, hyperinflation reached rates of more than 30,000% per month,

  • meaning prices were doubling every few days.

  • That's why in some historical photos, you'll see Germans burning cash to keep warm

  • because it was cheaper than buying wood.

  • Thisand more recent examples like the hyperinflations in Zimbabwe and Venezuelahas

  • shown us the damage out of control inflation can do to an economy and its people.

  • So when the Bundesbank became Germany's central bank in 1957, its focus on a

  • stable currency and keeping out of control inflation at bay were no surprise.

  • It was the first central bank to be given full independence, and it quickly gained

  • the reputation of being the world's most independent and conservative central bank.

  • At the same time, the Bank of England and most of its European counterparts were still

  • controlled by their governments. Let's get into why that matters.

  • Throughout the 1960s, most policymakers believed you could permanently lower unemployment by

  • accepting higher inflation. This economic concept is known as the Phillips Curve.

  • So conventional wisdom was that the central banks could increase the money supply, inflation

  • would go up a bit, and more people would have jobs.

  • It sounds great, right?

  • Politicians loved this idea too.

  • After all, a low unemployment rate is helpful when you're trying to get reelected.

  • Take former U.S. President Richard Nixon.

  • He inherited a recession when he was inaugurated in 1969.

  • "Our destiny offers not the cup of despair, but the chalice of opportunity."

  • And when it came time to getting reelected he was focused on keeping the economy moving.

  • The best way to do that, he thought, was to lower interest rates.

  • "A lot of the people are going to say, well here we go back into high interest rates again..."

  • ...I don't think that's a justified assumption."

  • Behind closed doors, he pressured the Federal Reserve Chairman to do just that,

  • and even though the Fed is supposed to be independent from the government,

  • the central banker appeared to comply.

  • The economy got its boost, and Nixon was reelected.

  • But he got a rude awakening not too long after that. Enter the Great Inflation, the first prolonged,

  • major period of inflation the world had seen during peacetime.

  • Annual inflation rates reached levels of over 10 percent across OECD countries, and some

  • people began to panic. What's worse?

  • The Phillips curve didn't hold true over the long term.

  • Inflation was high and so was unemployment.

  • It was lose-lose, a phenomenon known as stagflation.

  • Many people pointed to the 1970s energy crisis as the culprit, which caused the price of petrol to skyrocket.

  • "Gasoline stations ran dry. Airlines cut back flight schedules. Factories were forced to close."

  • But the general consensus today is that the monetary policy of the time played a significant

  • role as well. Just take a look at this chart.

  • You can see the inflation rates in the U.S., U.K., Italy and Japan spiking during the Great Inflation.

  • But Germany, home to the Bundesbank, kept inflation at a much more modest level.

  • So did Switzerland, which also had an independent central bank.

  • The 1970s exposed flaws in having governments controlling central banks.

  • The nature of election cycles means politicians have an inherent conflict of interest when

  • making decisions that impact the economy.

  • "As the recovery gathers pace, so our political fortunes will continue to improve."

  • It's tempting for them to skip unpopular choices like raising interest rates

  • or cutting the budget deficit in an election year.

  • So during the 1980s and 1990s, many central banks,

  • including the Bank of England, were granted independence.

  • The European Central Bank was established in 1998, and was modeled on the Bundesbank,

  • meaning it was independent from the outset.

  • The system had changed.

  • Politicians still set the broad goalkeep prices stable.

  • But it was up to the central bankers to make it happen.

  • "I want an end to the stop-go, the boom-bust economics of the past."

  • Billions of people around the world got used to low and stable inflation and the security

  • of knowing the interest rates on their bank deposits and mortgages were under control.

  • "Interest rates have come down. Inflation is down."

  • But then the financial crisis happened...

  • "But will these moves by central banks solve the problem?"

  • ...pushing central banks into the spotlight.

  • They announced emergency measures and unconventional steps to prop up the economy.

  • Essentially central banks became 'crisis response units' trying to stop the next Great Depression.

  • "The ECB is ready to do whatever it takes to preserve the euro."

  • Some people began to question whether the institutions really had their best interests at heart.

  • Protesters complained central banks were too secretive and that they cared more about bailing

  • out big banks than helping everyday people.

  • And of course, there was failing to spot the financial crisis in the first place.

  • Even though central bank independence was put in place to stop inflation from going

  • too high, some point out that a decade after the crisis, the actual challenge is inflation

  • rates being too low. So is their mandate still relevant?

  • It's a question many are trying to answer, including some central banks themselves.

  • But however they evolve, central bank bosses argue trust is key for them to be effective.

  • And to be trusted, they have to be independent.

  • "Without independence, policy is bound to go astray."

  • Yet it's not that easy.

  • Despite their supposed independence, most central bank heads are appointed by a political process.

  • For example, the European Council picks the ECB head

  • and the U.S. President selects the Fed boss.

  • "There are few more important positions than this."

  • In extreme situations, governments fire central bankers too.

  • Take Turkey.

  • Its president Recep Tayyip Erdogan fired his central bank chief in July 2019.

  • Many speculate this was due to his unwillingness to lower interest rates at Erdogan's request.

  • Research has consistently shown that economies perform better and prices are more stable

  • when central banks are independent. But with populist leaders in power and interest

  • rates at historic lows, whether central bankers will be able to hold on to the autonomy they've

  • enjoyed for the last generation remains to be seen.

Jerome Powell was a few months into his job as the Chair of the Federal Reserve when

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中央銀行は独立すべきか?| CNBCが解説 (Should central banks be independent? | CNBC Explains)

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    kstmasa に公開 2021 年 01 月 14 日
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