In their statement of solidarity with the Federal Reserve System and its Chair Jerome H. Powell, published on 13 January 2026, governors and chairs from the ECB, Bank of England, Sveriges Riksbank, Danmarks Nationalbank, the Swiss National Bank, Norges Bank, Central Bank of Iceland, Reserve Bank of Australia, Bank of Canada, Bank of Korea, Bank Indonesia, Banco Central do Brasil, South African Reserve Bank, Bank of New Zealand, and the Bank for International Settlements stated: “The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.” [1]
Introduction
Amid the social and economic shocks of the current global energy and commodities crisis, a concern of mine has been the potential for political pressure from governments to be brought to bear on independent central banks: it can be all too tempting for politicians to believe that printing more money is a quick fix. I wrote this opinion to remind myself and explore why this theme of central bank independence has been central. This opinion might serve as a useful reminder to World Alliance members to remain vigilant in their jurisdictions.
This opinion is based in large part on a study published by the European Central Bank at the end of 2025.[2]
I chose the ECB because its independence was foundational to discussions about its formation in the early 1990s. The euro project covers 21 countries today (Bulgaria has joined recently) – responding to political pressures from such diverse societies would be impossible; and by its very existence, providing central bank services to so many societies, it simply has to succeed in its mission of monetary stability, or pricing of everything across the entire zone would be at risk.
The Question
In her book about 14th-century France, A Distant Mirror: The Calamitous 14th Century, historian Barbara Tuchman observed that any prince could mint coins in gold at the start of his reign, then, in case of tax revenue falling, downgrade to silver, then copper or brass, and finally end up with nearly worthless tin. Money can be depreciated by government action. As these financial conditions change, citizens must adjust their economic actions cautiously. Pricing in nominal terms moves invariably upward.
Today, we do not live with coins or even that much with paper money. We miss these tangible examples of debasing currency. How much easier is it, then, to devalue electronic money, which does not even need to be printed?
The idea behind independence is that central banks, insulated from government interference, can devote themselves fully to pursuing their mandate, which is primarily to preserve long-term price stability to enable planning by all economic actors.
Based on a study of 155 central banks conducted by the ECB covering a 50-year period, the research presented in this ECB post shows that independence matters for price stability. Independent central banks can pursue more credible monetary policies and are therefore more effective at keeping inflation under control.
Lessons from the 1970s
At the end of the 1960s, governments and central bankers believed there was a stable trade-off between unemployment and inflation. It seemed that higher employment could be achieved at the cost of only somewhat higher inflation; this gave governments the justification to demand looser monetary policy. Then came two macroeconomic events that changed thinking. As the 1970s began, Washington took the US dollar off the gold standard, setting aside an anchor of historic monetary policy. Then, with the oil crises of the 1970s, high inflation and rising unemployment both occurred together.
According to the ECB study, in response to the idea of central bank independence then began to gain traction, backed by research findings:
First, independence offers an antidote to the time problem. Central banks implement monetary policies aimed at maintaining price stability over a relatively long horizon. Inflation does not respond to changes in the monetary policy stance immediately, but instead with long and variable lags. But when politics get involved, and governments want to boost their chances of re-election, they may be tempted to stimulate the economy, even at the cost of higher inflation over time.
Second, as a group, central bankers tend to be “conservative” in the sense that they prefer to combat inflation rather than reduce unemployment. That is their overriding responsibility.
Third, research showed a broad consensus that independence and inflation are negatively correlated overall. More central bank independence in policy-setting does not show negative effects on economic growth.
The ECB study added that some critics have argued that the beneficial influence of independence on price stability may simply reflect correlation rather than causation. Other exogenous factors, such as the Great Moderation – the period of low macroeconomic volatility in the United States between the 1980s and the financial crisis in 2007 – or globalization, may also come into play. Both contributed to low and stable inflation in some countries, regardless of whether or not their central banks were independent.
Institutional Central Bank Reforms
To confirm whether and in what ways independence has marked a significant new operating path for central banks, the ECB researchers compared economic conditions before and after independence. The analysis also checked for the influence of other factors.
The study covered institutional central bank reforms in 155 countries over the past half-century. The results show that independence does indeed contribute to price stability, because independent central banks are more credible. Particularly in democracies, independent central banks can take a more “conservative” approach with eyes on the longer game. In other words, when aiming to maintain price stability, independent central banks may not need to raise rates so much because they are credible. The possibility of using that rate tool to stem inflation is always in the background, should it be needed.
The ECB’s empirical study noted that if the government has no say in monetary policy, the central bank is more likely to favor price stability over other, more short-term objectives.
Differences in political and institutional contexts also matter. The ECB analysis considered the influence of fiscal policy and other institutional factors, such as the political system and the exchange rate regime. The conclusion on these elements was that institutional central bank reforms that enhance independence have the greatest effect on limiting inflation in democratic countries, countries with flexible exchange rate regimes, and countries without formal monetary policy targets.
The ECB’s quantitative work drew on annual macroeconomic data from the World Bank and the International Monetary Fund. It also used a legal index measuring the degree of central bank independence over time and across countries. Derived from a detailed analysis of central bank statutes based on 42 criteria, the index ranges from 0 (the lowest level) to 1 (the highest). Given these common definitions for data, these sources of information are valid for making international comparisons. Examples of the criteria used include how board members are appointed and dismissed, monetary policy objectives and their operational implementation, limitations on lending to the government, central bank financial independence, and reporting and disclosure requirements.
Other Tests
To test whether the thinking has worked in practice, the ECB researchers examined the varying degrees of central bank credibility, meaning the extent to which a central bank is able to stabilize inflation around its policy target. To establish a metric, the study examined absolute deviations between observed inflation and inflation targets for each country (both overshooting and undershooting a target have adverse effects on credibility). The smaller the deviations, the more credible the central bank.
The ECB found a positive correlation between independence and credibility. However, this descriptive evidence does not in itself establish causality. Other factors may explain the relationship. To check whether there is a causal relationship between the two variables, the ECB was able to show the impact of central bank reforms over time and their cumulative impact on our measures of policy credibility.
The results show that independence is indeed causal for credibility. An increase in the independence index of 20 basis points – the average historical change from the worldwide reforms carried out between 1990 and 2020 – leads to a persistent 6% increase in credibility after ten years.
In short, independence enhances monetary policy credibility. On average, the more independent a central bank is, the better aligned the inflation outcomes are with its target.
The Bottom Line
The experience over the past 50 years underscores the importance of safeguarding central bank independence as a cornerstone of sound monetary policy, which offers significant benefits for society. Independence is important, but this does not mean that central banks should be granted unlimited power. Making central banks democratically accountable for their policy actions strengthens legitimacy and reduces political interference.
The point of money is to store value. Stability enables it to maintain value longer. The independence of the central bank manager of that currency helps ensure that the value of money is maintained over longer periods.
[1] https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr260113~ec4630b9fa.en.html
[2] https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog.20251223~aad70ce537.en.html