Central Bank ‘Independence'

The global financial sector still has very little regulation over its capacity to manufacture money (or to refrain from doing so), even though the credit crash occurred nearly seven years ago. Many hopes are placed on central banks but surely they have been forced to play an ‘unfair game’, as Hyman Minsky said years ago. This paper investigates ‘independence’, not only as a sociological misnomer, or a form of central bank ‘dependence’ on what financial markets ‘think’ (as Fed members say) but also the effects of central bank quantitative easing since the crisis. The Fed’s QE has enormous impact on most other economies. The ECB is (or was) a test case for hopes of international agreements over the control of money creation. Although the field shifts rapidly, it appears to be dominated still by bond vigilantes behind which lie coalitions of interests that defend the status quo ante. So far few effective oppositions have risen to urge a firmer path for the Fed, such as that taken by the Swiss National Bank. In 2012 it called the bond trading firms’ bluff; in contrast the Bank of Japan is under some ‘control’ by Treasury. I report on my current interview material in Europe with central bankers and treasury officials.