Central bank independence and the idea of money neutrality: re-considering the theoretical link

There is a strong consensus view in mainstream macroeconomics, that monetary institutions must be depoliticized and independent from governments. A further economic conviction is that money could be mainly conceived as a neutral means of exchange. This paper argues that the consensus view, that central banks must be independent, has its roots in the paradigm of neutral money. As I will show from a heterodox perspective that there is no such thing as money neutrality, the theoretical foundations and conceptual roots of central bank independence are controversial and its political economic narrative is shaky. To overcome these contradictions, pluralism in economics teaching is necessary. In order to grasp and understand the implications of the non-neutrality of money, the curriculum of monetary theory and policy has to consider heterodox theoretical approaches to money.