Christine Lagarde: Central bank independence in an era of volatility

Lamfalussy lecture (pre-recorded) by Ms Christine Lagarde, President of the European Central Bank, at the Lamfalussy Lectures Conference, organised by the Magyar Nemzeti Bank (the central bank of Hungary), Budapest, 27 January 2025.

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

Central bank speech  | 
28 January 2025

In his later years, Alexandre Lamfalussy was once asked what his fundamental motivation in life was. He recalled the experience of his turbulent youth, surrounded by the destruction caused by the Second World War. "In the aftermath of the war," Lamfalussy said, "I decided to serve the community in the rebuilding of Europe."

He went on to do just that. A member of the Delors Committee and the first President of the European Monetary Institute, Lamfalussy helped pave the way for Europe's monetary union and the establishment of the ECB.

His generation had also been scarred by the difficulties of the "Great Inflation" in the 1970s. And so Lamfalussy – alongside other architects of the euro – ensured that the ECB would have sufficient powers to prevent a scenario where inflationary expectations once again became embedded in the economy.

We can see proof of this today, as advanced economies emerge from the largest inflation shock in a generation.

As in the 1970s, a series of shocks contributed to high and persistent inflation. But unlike the 1970s, inflation has since fallen relatively fast across advanced economies – and expectations have remained firmly anchored throughout.

This hard-won progress has been in large part due to the independence of central banks, which has given them the ability to take difficult but necessary monetary policy decisions in pursuit of stable prices.

The rise of central bank independence

In the late twentieth century, central bank independence spread rapidly around the world.

A strong social consensus about its benefits – emerging from the negative experience of the 1970s – sparked what Lamfalussy would later call a "sea change" in monetary policymaking.