There is a massive movement supporting that central banks are free of state intervention; if a bank is free from political intervention, then it will focus on creating healthy monetary policy. These policies however, have been altered by the Eurozone Crisis. In a larger discussion, various central banks have had varying degrees of influence from the political sphere.
The ECB benefited from this independency, but with the Euro becoming weaker, there are voices that ask for an end to this situation. The ECB is a creation of the Maastricht treaty, created in 1998, enforced by the transition to the euro in 1999. Since it governs the monetary policy of the 19 members of the Eurozone, but its level of political independency is often put under question (Baimbridge, Burkitt and Whyman). It is known that when a government intervenes in the activity of its central bank, to raise money for various policies, inflation inevitably rises and the standard of living decreases, which can lead to social unrest and the depreciation of the value of currency on international markets, which affects trade.
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"Are Central Banks More Or Less Effective When They Are Independent Of Political Influence?".
Thus, the concept of independency is often diluted by the interdependency of the organizations involved in the decisional process. Given the weakening of the Eurozone and the failure of the Transatlantic Partnership, the Federal Reserve Bank of the US is under scrutiny as it is about to change management under political pressure (Williams). In the Eurozone, the bank’s activity has been questioned, but not influenced in any way by the political sphere. In the US, the Federal Reserve has been independent in policy, but the naming of figures is done by the executive branch of the government, a fact that always threatens its independency, but has been done for years with little impact on markets as the dollar has maintained its position as the world’s leading trade currency. Fluctuations of the dollar, however, have a global effect, much more than the ECB has.
In the case of the ECB, it pushes towards greater integration of the states that use the Euro, whereas the federal reserve influences NAFTA, but the latter is more interested in free trade rather than greater political influence. In terms of central banks independence, the German Bundesbank a model as it kept inflation down, both after the reunification of the two Germanys and during the transition to the euro. Their stability and policies often serve as an example to other central banks. At the other end of the spectrum is the Central Bank of Japan, which is politicized and maintains policies that are directed by the rest of the political construct in the country. Its wide fluctuations on the market create a strain on the global economy, as proven during the Asian Trade Crisis, as the value of the yen floats freely, without too much intervention.
However, in the larger discussion it seems that political influence on central banks is a bad measure as it allows a government a leeway of using the money from the bank in any way they seem fit, without considering the larger repercussions on the national or global economies. Interventionism leads to hyperinflation, as proven by Zimbabwe or Hungary at the end of the Second World War, when the value of the printed money was less than that of the paper it was printed upon. Resultantly, to increasing political influence on the ECB or another central bank results in cries about democratic values being attacked, as the independence of the institution is put under question. It is known that when a government intervenes in the activity of its central bank, to raise money for various policies, inflation inevitably rises and the standard of living decreases, which can lead to social unrest and the depreciation of the value of currency on international markets. It seems thus that a low level of political influence results in a much stable construct, able to withstand economic shocks. This policy should be followed by other central banks, as independence from the political assures the creation of healthily financial policies, which enable a standard of living, limit the influence of stock market speculation and leads to a healthier global financial environment.
