The institutional path of central bank independence

The chapter examines the legal and institutional contours of central bank independence and focuses on the rough consensus that prevailed in the pre-2008 era of price stability oriented central banks and how the notion of independence is changing in a World in which financial stability becomes ever more relevant. To dissect the notion of independence, the chapter responds to the questions of independence from whom and independence in what, and considers the ‘goal constraint’ and other limitations (ordinary versus extraordinary times). De iure independence is manifested in a series of guarantees or safeguards that should govern the organization and functions of central banks on the one hand and the integrity and professionalism of central bankers on the other hand. The chapter also analyzes accountability in the context of both monetary and supervisory independence and concludes by observing that while too much independence may lead to the creation of a democratically unacceptable ‘state within the state’, too much accountability threatens the effectiveness of independence. The debate about independence and accountability resembles the philosophical debate about freedom and responsibility: independence without accountability would be like freedom without responsibility.