Personalism and the politics of central bank independence under authoritarianism

This paper provides a domestic explanation for variation in de jure central bank independence (CBI) in nondemocracies. I argue that there is a nonlinear relationship between personalism and CBI: regimes with very low and very high levels of personalism tend to have lower CBI compared to states with intermediate personalism. Where personalization is low, autocrats face greater constraints and more frequent political challenges, leading to increased contestation over political institutions. In these states, leaders choose lower CBI to signal their control over monetary policymaking and prevent dissent over economic policy. In contrast, in strongly personalist regimes, leaders face few risks associated with CBI, but they discount the benefits of CBI and thus prefer not to implement costly central bank reforms. Nondemocracies with intermediate levels of personalism tend to have the highest levels of CBI. I support these arguments using recent data on CBI from 1970–2012.