Claudia Buch: Central bank independence - mandates, mechanisms, and modifications

Remarks by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, prepared for the panel discussion "Lessons from Central Bank History?" on the occasion of the conference "From Reichsbank to Bundesbank", virtual event, 24 September 2021.

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

Central banks are unique institutions. Their main policy objective – price stability – is crucially important for societal well-being. Independence enables central banks to take monetary policy decisions with a sufficiently long time horizon in mind and without being subject to electoral pressures. Thus, central bank independence is not self-serving. In Germany, the Bundesbank Act codifies the Bundesbank's independence from the political process. This institutional setup served as a blueprint for the European Central Bank.

At the same time, policy instruments used by central banks and the transmission channels of those policies are rather technical. They do not lend themselves very well to day-to-day public policy discussions.

Additionally, central banks' tasks go beyond monetary policy. Central banks contribute to financial supervision and financial stability policies, the provision of cash as well as overseeing and operating the payment system. The decision which tasks and responsibilities fall within the remit of central banks is taken by policymakers.

Central bank independence does thus not diminish the need to be transparent and accountable to the public. Central banks are part of an institutional infrastructure that provides stability in a changing world. They act as guardians of price and financial stability on behalf of the general public. As public institutions, central banks must act in accordance with society's basic political values. To fulfill their role, central banks cannot work in an ivory tower, and they need to cooperate with other government bodies. Independence does thus not imply isolation from societal trends, and transparency ensures that the public can hold central banks accountable to their role.