NATION

Independence Of Central Banks Stressed

A former Governor of the Reserve Bank of India stressed the importance of central banks being independently responsible for their monetary policies. This was a key message from Dr Duvvuri
16 May 2015 09:44
Independence Of Central Banks Stressed
Former Governor of the Reserve Bank of India Dr Duvvuri Subbarao. Photo: Rachna Lal

A former Governor of the Reserve Bank of India stressed the importance of central banks being independently responsible for their monetary policies.

This was a key message from Dr Duvvuri Subbarao, who made a presentation at the Fiji Institute of Accountants Congress 2015 at the Shangri-La’s Fijian Resort and Spa, Yanuca Island, yesterday.

He believed this was because the independent central banks were formed on the understanding that a political public institution like a central bank could be added insurance for a democratically-elected Government.

“So a government has its own compulsions to deliver within a timeframe whereas a central bank can take a longer term view and I believe together, they add value to economic management,” he said.

“So, it’s important that central banks make their decisions autonomously.”

Government influence

In terms of influence from governments around the world, Dr Subbarao said this varied from one central bank to another and one government to another.

But, he however, noted that it was true that across the world, even in the most advanced economies, governments had an influence on what central banks were doing.

“In many cases, that’s a very positive influence,” he said.

“The Government is a stakeholder in what the central bank is doing and therefore it is important the government has a say or at least an avenue for expressing its point of view to the central bank.

“All said and done, at the end, it must be the central bank which must make the decision on the monetary policy.

“There are other areas, for example, financial stability which is becoming an important responsibility of central banks where some consultation might be necessary.

“If the central bank has some development obligations like financial inclusions or development of financial markets, it is important that the central bank and the government work together.

“In terms of monetary policy and in terms of bank regulations where the central bank does the regulation, it is important that they have autonomy.”

Leadership

When asked what sort of leader would be fit to become a central bank governor, Dr Subbarao said governors were leaders like any others.

“One thing they must realise is a central bank governor makes public policy decisions that effects everyday lives of people,” he said.

Having said this, Dr Subbarao said one had to be mindful that, typically, a central bank governor was not elected.

“Whereas an elected public official is held to account by the parliament through checks and balances, a central bank governor is acting autonomously with the mechanisms for enforcing accountability being relatively limited.

“So I think the central bank governor has the conscious that he/she is an unelected leader working in a democratic context.

“Therefore, a governor has to be accountable for the decisions he/she makes which has a very big impact on the people’s lives.”

Feedback:  rachnal@fijisun.com.fj

 



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