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Independence Of Central Banks: Myth Or Reality

articles & speeches

Association of African Central Banks, 2014 Symposium

Initially the concept of independence of central banks was focused on the central bank’s monetary policy objective. Since the early 1990s was a broad consensus that for a central bank inflation or price stability was an overarching goal.

It is my great pleasure to participate in your Symposium with the topic of the Session: “Fiscal -Dominance and Independence of Central Banks.” I would like to start with a caveat.

I have no ambition for this speech to be an academic contribution or give some firm policy recommendations. I have good reasons to be humble about the goals. First, you are central bankers, experts in your field and I am sure that no one knows the functioning of your economies, central banks and relations with finance ministries better than you do.

Second, the African continent is so vast, economies are very different and so are monetary regimes (from inflation targeting to monetary unions with pegs to the euro). In spite of an overall improvement in inflation and macro stability in general, the fiscal situation ranges from double-digit fiscal deficits to fiscal surpluses and the inflation record is equally diverse. Some countries (or monetary unions) have modern laws with a high degree of de iure independence; some laws are not so modern. Third, I admit, my knowledge about African economies is limited.

This presentation consists of two parts. First, I will discuss independence and fiscal dominance as well as their relation. In the second part, I would like to share some of my own views and experiences on this topic, the lessons that I have learned, first during my term as governor in my home country, Croatia (1996-2000), and afterwards while following central banking developments. As they say, once a central banker, always a central banker.

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