Yves Mersch: Central bank independence revisited

Keynote address by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the "Symposium on Building the Financial System of the 21st Century: An Agenda for Europe and the United States", Frankfurt am Main, 30 March 2017.

Good morning, ladies and gentlemen. It is a pleasure to speak to you today on the subject of central bank independence.

Independence has been granted to central banks in order to shield them from short-term political influence when fulfilling their mandate of ensuring price stability. It is largely undisputed that an independent central bank with a clearly defined mandate is better able to keep inflation lower and more stable. In the post financial crisis era, however, central banks in many countries have been entrusted with powers and responsibilities going beyond their traditional monetary policy mandates. Central banks have, for example, started acting in the areas of macro- and microprudential supervision and crisis management. Also, while remaining within their monetary policy mandate, some central banks adopted unconventional monetary policy measures. Critical voices claim that central banks have been over-stretching their mandates, blurring or even crossing the line into fiscal and economic policy. Central banks are accused of influencing the distribution of income and wealth and subsidising the financial sector at the expense of society as a whole - policy areas which traditionally require more democratic legitimacy and control. This has re-opened the debate surrounding the legitimacy, and the precise scope, of central bank independence.