AthanasiosOrphanides
CollegeofCentralBankersWebinar
October10,2024
Theinstitutionalchallenge
“Theproblemistoestablishinstitutionalarrangementsthatwillenable governmenttoexerciseresponsibilityformoney,yetwillatthesametimelimit thepowertherebygiventogovernmentand preventthepowerfrombeingusedin waysthatwilltendtoweakenratherthanstrengthenafreesociety.”(Milton Friedman,1962,1968)
“ItissaidthatGovernmentcouldnotbesafelyentrustedwiththepowerof issuingpapermoney;thatitwouldmostcertainlyabuseit;andthat,onany occasionwhenitwaspressedformoneytocarryonawar,itwouldceasetopay coin,ondemand,foritsnotes;andfromthatmomentthecurrencywould becomeaforcedGovernmentpaper. Therewould,Iconfess,begreatdangersof this,ifGovernment—thatistosay,theMinisters—werethemselvestobe entrustedwiththepowerofissuingpapermoney.”(DavidRicardo,1824)
A“defect”ofCBindependence:Discretion/personalities
“Anotherdefectoftheconductofmonetarypolicythroughanindependent centralbankthathas agooddealofleewayandpower istheextenttowhich policyistherebymade highlydependentonpersonalities. Instudyingthehistory ofAmericanmonetarypolicy,Ihavebeenstruckbytheextraordinaryimportance ofaccidentsofpersonality.”(MiltonFriedman,1962,1968)
CBindependenceunderthreat?
▶ Lapsesindefendingpricestability/failuretoadheretosystematicpolicy.
▶ Excessivebalancesheetexpansion/projectionoffiscalpowers.
▶ Inappropriateuseofdiscretionaryauthority/legitimacyissues.
▶ Theroleoftransparencyandaccountability.