Makhlouf emphasizes central bank independence as societal anchor
Central Bank of Ireland Governor Gabriel Makhlouf delivered a speech at the Blavatnik School of Government, emphasizing central bank independence as a crucial institutional anchor. He discussed mandates, accountability, and future challenges for central banks.
Independence: The bedrock of credibility
Governor Makhlouf described central bank independence as an institutional tool, delegated by elected legislatures, to serve the public interest.
He views independence as an "anchor providing stability" rather than a shield, enabling central banks to make difficult decisions with a longer horizon.
Credibility, the central bank's most valuable asset, allows action when politically inconvenient but economically necessary.
Historical periods, such as the 1960s and 70s, demonstrated that monetary policy subject to short-term political pressures led to persistently high inflation and macroeconomic volatility.
The shift in the 1980s, exemplified by Paul Volcker's leadership at the Federal Reserve, prioritized price stability despite intense political pressure, highlighting the necessity of independence.
Earning trust amid new challenges
Makhlouf stressed that independence is credible when mandates are clear and central banks are accountable to parliaments.
Accountability, transparency, and dialogue reinforce trust, which is essential for safeguarding independence.
He highlighted engagement with academia, such as the Central Bank of Ireland's research programs, as crucial for challenging thinking and guarding against group-think.
Looking ahead, Makhlouf flagged two key challenges.
The first is the risk of fiscal dominance, where governments might force central banks to choose between sovereign solvency and price stability.
The second is the ongoing communications revolution, requiring central banks to adapt to maintain trust and credibility in a changing information landscape.