Javier Guzmán Calafell: Safeguarding central bank independence

Article by Mr Javier Guzmán Calafell, Deputy Governor of the Bank of Mexico, prepared for "Global Public Investor 2019", published by the Official Monetary and Financial Institutions Forum (OMFIF) on 12 June 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The broad turn towards central bank independence can be traced back to the 1970s and 1980s. Many countries were experiencing high inflation. Therefore, attention focused on overcoming 'time inconsistency', a problem inherent to monetary policy. This is the risk that policymakers, for political reasons, will aim for short-term gains through expansionary policies, since their costs will not be visible immediately. Proposals to enhance central bank independence emerged as a viable device to face these challenges.

The case for independence has strong underpinnings, but there has been growing doubt over its merits. This was initially a consequence of the monetary policy response to the 2008 financial crisis, particularly in the largest advanced economies. First, amid low inflation, some argued central bank independence was no longer justified.