The global financial crisis is forcing the world’s central bankers to surrender some of their prized independence. Regaining it won’t be easy.
More than a principle is at stake. For longer than a quarter-century, independent central banks have been able to take painful and politically unpopular measures needed to restrain inflation. The worst economic calamity since the 1930s leaves Federal Reserve Chairman Ben S Bernanke, Bank of England Governor Mervyn King, Bank of Japan Governor Masaaki Shirakawa and their colleagues under pressure to align policies with those of their nations’ elected leaders.
As a result, policy makers may find it harder to act whenever the time finally comes to begin soaking up the money with which they’ve flooded the globe.
“The lines between central banks and governments are becoming fuzzier,” says Nouriel Roubini, a New York University economist. “Inflation is the path of least resistance for politicians, but it is dangerous.”
