Some will say that the way for central banks to ensure their independence is to abandon macroprudential and microprudential policies and foreswear unconventional interventions in securities markets. But a key lesson of the crisis is that macroeconomic and financial policies are closely intertwined, and that their coordination is most effective when the two tasks are housed in the same institution, if run by separate committees. Given the prevailing low level of interest rates, moreover, it is all but certain, come another crisis, that unconventional policies will be back.
What central banks can do to head off threats to their independence is become more transparent. They can announce the votes of individual board members on all policy-relevant matters and release minutes without undue delay. They can hold more press conferences and be less platitudinous in explaining their policies. They can avoid pontificating on questions remote from their mandates. They can acknowledge the right of politicians to define the goals the central bank is tasked with achieving.
And to shape the views of those politicians, they can better explain why cooperation with fiscal authorities and foreign central banks is in the public interest. They can publish more detailed financial accounts, including on their individual security transactions and counterparties.
Above all, they can avoid intervening in parliamentary politics, as the European Central Bank did when it hastened the fall of Silvio Berlusconi’s government in Italy in 2011. Then they can keep their heads down and hope for the best.
Barry Eichengreen is professor of economics at the University of California, Berkeley; Pitt Professor of American History and Institutions at the University of Cambridge; and a former senior policy advisor at the International Monetary Fund. His latest book is "Hall of Mirrors: The Great Depression, the Great Recession, and the Uses – and Misuses – of History."