In recent years, the role that central banks play in the economy and their position within or outside government structures have been the focal point of numerous contributions, mainly by economists and lawyers but also by political scientists. This may be not only due to the fact that the tasks that central banks fulfill have changed dramatically, but also a consequence of the increased attention paid to the broad approaches to economic policy and the role that central banks fulfill in this regard. Central bank systems have been scrutinized systematically with regard to their institutional structure in search of the ideal arrangement from both an economic and a legal point of view. Adding to this has been the more recent discussion on good governance as a means to facilitate macroeconomic stability, orderly economic growth, and a stable regulatory environment. Central banks are thought to play a vital role in achieving these goals to the extent that the legal framework in which they operate reflects good governance.1 As Lybek has pointed out: “Good central bank governance means that the objectives and tasks delegated to an institution are performed effectively and efficiently, thus avoiding misuse of resources, which is crucial for establishing a good track record.”2
This chapter identifies a number of principles that arguably should form the basis for the good governance of central banks, and identifies their impact on the institutional structure of a central bank. If it is accepted that the legal framework of a central bank should be based on these principles, the question arises whether and to what extent they can and should form the basis for a model central bank law.
Throughout the discussion emphasis is placed on institutional, rather than operational, considerations and legal, rather than economic, considerations. While the importance of the economic dimension of central bank governance is acknowledged, given the many facets of this dimension, it is not possible to address it within the context of the present discussion. Given the broad institutional approach to central bank governance chosen for this discussion, issues more closely related to what may be summarized under the term “corporate governance” are also outside the scope of this chapter.3 Finally, while many observations made herein have implications for all areas of operations of a central bank, in principle this discussion focuses on the arrangements surrounding the primary task of central banks, that is, the conduct of monetary policy.
The Three Pillars of Central Bank Governance
Central bank governance is arguably defined by a number of key concepts or pillars, which together should form the basis of the legal framework governing a central bank and on which central bank governance should rest—that is, independence, democratic accountability, and transparency. While these concepts are in the first instance introduced separately this is not to say that they should be considered in isolation. In fact, as will be highlighted later in the discussion, the three pillars are intertwined and in some instances positively or negatively correlated.
Central Bank Independence
While central bank independence is still one of the most discussed institutional features of a central bank in economic and legal literature, it may be concluded that there exists a large consensus basically accepting the need for central bank independence. Indeed, in recent years an increasing number of countries have released their central banks into independence or strengthened the existing degree of independence. In the European context this has been promoted by the establishment of an Economic and Monetary Union (EMU) along with legal requirements that member states of the European Union have to meet with regard to the institutional structure of their respective central banks in order to qualify for participation in the euro zone.4 Numerous economic studies have set out to establish the economic benefits of central bank independence and in particular its impact on inflation and inflation variability as well as growth and growth variability.5
The basic argument is that elected politicians face monetary temptations conflicting with an inflation-averse monetary policy. The very nature of their position, being based on the mandate of the electorate, makes it impossible for politicians to be impartial to the short-term benefits of an expansive monetary policy. Politicians may also lack the qualifications of experts in the field. By leaving it to the discretion of an independent central bank to conduct monetary policy, the focus can be on long-term stability rather than short-term monetary temptations.6 Some promoters of central bank independence even go so far as to argue that a central bank should in fact be a separate, fourth branch of government that can check potentially damaging policies of other government branches.7 And indeed in some instances central banks may have taken on this role voluntarily, such as in the case of the European Central Bank.8
Despite the overall convincing economic case for independence it is nevertheless important to always keep in mind that a universal legal theory, according to which a central bank charged with the conduct of monetary policy has to be independent, does not exist. Rather, central bank independence may be required as a feature of the institutional structure of a central bank in order to ensure the effective conduct of monetary policy.
Both legal and economic studies on central bank independence focus primarily on the evaluation of the institutional settings of the central banks and their relationship with the executive and legislative branches of government. Different aspects of independence are classified under headings such as institutional, functional, organizational, and financial independence.9
Central Bank Accountability
The second pillar of central bank governance is democratic accountability. As has been set out elsewhere, the need for mechanisms of democratic accountability derives from both the legal nature of a central bank and its position within a democratic system, as well as the task that a central bank usually fulfills with regard to monetary policy.10
It may be considered a common feature of all central banks, which do not form an integral part of the executive branch of government, that they fall outside the classical three-branch system of government, or trias politicas, and its system of checks and balances. The latter forms an important element in the legitimation of and the accountability for the power delegated to these branches. From a normative point of view, the need for mechanisms of democratic accountability derives from the special position that the central bank has vis-à-vis the democratically elected legislative and the executive branches. To the extent that central banks are independent, mechanisms of democratic accountability are required in order to legitimize the position of the central bank within a given constitutional system. Central banks do not operate in a constitutional vacuum nor should they.
From a more functional point of view it can be observed that despite its importance, monetary policy in principle forms part of economic policy and should thus ultimately be given similar consideration as other elements of economic policy when it comes to the requirement of democratic accountability.11 Indeed, a central bank does not hold a neutral position within the system of government. Since the executive delegates functions to the central bank, the accountability of executive activity through the institutions of the legislative branch is narrowed. While the initial act of delegation of monetary policy to a central bank through an act of parliament arguably legitimizes the position of a central bank in a given constitutional system, this cannot justify the absence of mechanisms of democratic accountability.12
To be sure, a situation in which a central bank operates under executive control is not only likely to deteriorate the performance of the tasks performed by the central bank for the reasons explained above, but such a situation also does not remove the need for mechanisms of democratic accountability. Rather than merely providing for adequate mechanisms in the institutional setup of the central bank, the government itself has to be accountable for its control over the central bank.
It has been argued that independent central banks constitute a democratic self-restraint by the democratically legitimized legislative branch, which recognizes its own tendency to (ab)use monetary policy for its own political ends.13 The logic behind this argument seems to be that central bank independence provides monetary stability, which in turn is a necessary condition for a stable democracy. The implication of this school of thought is far reaching indeed as monetary stability seems to be viewed as an essential precondition of democracy. From this hypothesis it is only a small step to elevate central bank independence to the ranks of a democratic principle.14 Yet, it is far from self-evident that the absence of a system of checks and balances could actually promote or stabilize a democratic system.
It is true that the case for central bank democratic accountability is based on the assumption that central banks operate in a democratic system featuring a basic separation of powers and a system of checks and balances. Where countries lack some or all of these prerequisites, making central bank independence subject to the development of democratic institutions may actually turn out to be counter productive.15 Indeed, it could be argued that the introduction of central bank independence and some (lesser) mechanisms of accountability to non-majoritarian systems will still have the potential of enhancing democracy, as it may result in a more stable economic environment, arguably creating an atmosphere in which democratic structures are given a chance to develop. However, at the same time it has been suggested that central bank reforms have also been used by conservative authoritarian regimes in the past to insulate the central bank from un-desired public scrutiny in the wake of a transition to democratic rule.16
There are various ways in which mechanisms of accountability can form part of the legal basis of central banks, and different elements have been identified as contributing to such.17 Interestingly, in many instances they refer to the same institutional features of a central bank, which are examined in the context of central bank independence, such as the way in which the bank conducts monetary policy and the relationship of the central bank with the executive and legislative branches of government.18
Central Bank Transparency
In the course of the discussion on democratic accountability, transparency has emerged as yet another key feature of the way in which central banks operate.19 Indeed, while the traditional view has been that at least some of the tasks assigned to central banks can best be achieved outside the limelight, in more recent times central banks have discovered transparency as an ally both in meeting demands of more openness and accountability and in communicating monetary policy. In the words of Posen it may be observed that “central bank transparency has gone from being highly controversial to motherhood and apple pie.” 20 Together with central bank independence and accountability, transparency forms the third pillar of central bank governance.
Despite its common usage it is not always very clear what central bank transparency amounts to. Basically, two definitions of transparency can be distinguished in the policy-oriented literature on central bank transparency. First, central bank transparency is referred to as the activities of the central bank in providing information. Thus, for example, Lastra defines transparency as the degree to which information on policy actions is available.21 A second, somewhat broader, approach to transparency includes the public’s understanding of the decisions taken by the monetary authorities and the reasoning behind them.22
Arguably, the role of transparency in central banking may be twofold. First, transparency functions as a precondition for accountability. In the words of Deane and Pringle, “an open democratic society has the right to demand a broad degree of understanding of what central banks do and how they do it.” 23 Through institutional arrangements ensuring the transparent conduct of central bank activities, those institutions charged with evaluating the performance of the central bank gain the necessary information that facilitates evaluations being made on a reliable basis. As Day and Klein have observed, “effective scrutiny implies effective access to information.”24
It is with regard to transparency that the International Monetary Fund (IMF) has already made an important contribution to defining central bank governance. In the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies25 a broad approach is taken to the notion of central bank transparency, referring to it as
an environment in which the objectives of policy, its legal, institutional, and economic framework, policy decisions and their rationale, data and information related to monetary and financial policies, and the terms of agencies’ accountability, are provided to the public on an understandable, accessible, and timely basis.26
At the same time, it may somewhat overstretch the potential of transparency as a pillar of central bank governance if these information requirements are summarized as “broad modalities for accountability for the conduct of monetary policy.” 27 Transparency by itself cannot provide for a sufficient degree of democratic accountability and, thus, cannot serve as a substitute for other mechanisms of accountability. Transparency as a constraining mechanism is overestimated by those observers, who assume that, once provided with sufficient information, the financial markets provide an adequate mechanism of accountability in the form of a loss of credibility of the central bank in case of poor performance.28 As observed by Posen the claim that central bank transparency provides sufficient accountability for central banks in democratic societies is misleading.29 The mere fact that a central bank has to conduct monetary policy in a transparent manner, at best, results in the availability of the information necessary in order to evaluate the bank’s performance.
Consumers of this information are not only governments but also the general public. The latter’s perception of what the central bank does and how it is done may have an impact on the performance of the central bank. Put differently, insulating the central bank from outside influence and providing it with a clear set of (monetary policy) objectives may not, by itself, be sufficient to ensure the success of the bank in performing the tasks assigned to it, as transparency may form a vital component of an effective monetary policy.30
In identifying the features describing a transparent central bank the main focus lies with the conduct of monetary policy, an area that has already been identified in the context of central bank independence and accountability where it plays a similarly important role.31
Good Governance in the Conduct of Monetary Policy
Each of the three pillars of central bank governance deserves to be observed in its own right for the reasons stated above. Arguably, the key to good governance in this regard lies in the combined application of these principles in designing the legal framework of a central bank. As it has become clear that the same central bank features are consulted in order to implement the respective element, observing all three pillars becomes a balancing act. The conduct of monetary policy forms the primary task of a central bank. Hence, institutional arrangements ensuring good governance must first and foremost relate to this function. Moreover, the three pillars take center stage in the relationship between the central bank and the executive and legislative branches of government.
Monetary Policy Formulation and Communication
It is monetary policy that central bank independence is primarily geared toward. Institutional independence first of all refers to the central bank’s power to formulate monetary policy independently from political institutions. Moreover, it may also refer to a central bank’s freedom to set the final goals of monetary policy. This is also sometimes referred to as political or goal independence.
From the point of view of accountability, a yardstick is needed for the body charged with holding the bank accountable in order to determine whether the central bank has discharged its duties in a satisfactory manner. Indeed, without a yardstick, an assessment of the central bank’s performance is either impossible or able to be based only on variables most likely in the form of political considerations, which will not serve accountability. Both the monetary policy objective of a central bank as well as its projections on monetary policy and quantified intermediary targets can form the basis for such a yardstick.
The existence of an explicit and clear legal mandate for the central bank has to be considered an important feature of all three pillars of central bank governance. A clear monetary policy objective reduces the risk of political pressure and open conflicts between government and the central bank,32 while at the same time ensures that the central bank does in fact follow an inflation-averse monetary policy.33 Central banks charged with multiple objectives face policy choices that may require putting aside the objective of price stability.34 A single objective may be politically difficult to defend. However, in the case of multiple objectives there should be a clear hierarchy of objectives stated in the central bank law. When this is left to the central bank to decide, the real objectives of monetary policy may be opaque and, moreover, subject to unsolicited influence.
The classic example for a central bank featuring multiple objectives is the U.S. Federal Reserve System (Fed). Here the actual objective of monetary policy can only be construed from central bank announcements. The European Central Bank (ECB) is an example of a system that includes a clear prioritization, since the bank is only allowed to support the general economic policies in the European Communities if and to the extent that this does not interfere with the primary objective of the ECB, that is, price stability.35 However, the value of a secondary objective may be limited. The central bank may interpret the primary objective, for example, price stability, in such a way that it effectively excludes steering monetary policy toward a secondary objective, in particular if the secondary objective is broad and largely undefined, such as in the case when the legal basis refers to the supporting of the general economic policy. In such an arrangement the central bank may very well effectively ignore the secondary objective, by arguing that this objective can best be achieved by pursuing the primary objective.36
Whether the monetary policy objective is directed toward price stability or another economic aggregate is secondary from the point of view of central bank governance, as long as it is quantifiable in a way that allows for the formulation of a point target or target range. Monetary policy objectives can range from broadly defined to quantified objectives. Broadly defined objectives may be considered the least useful in terms of providing a yardstick for the evaluation of the performance of the central bank. In such a setting the central bank not only has to decide whether and when to apply the monetary policy instruments, but also has to define the monetary objective and decide on the approach it takes in achieving this objective. In economic terms the central bank has both instrument and goal independence. This has, for example, been established for the ECB. This is also the case, albeit to a lesser extent, in situations in which the legal basis fails to quantify the monetary objective, leaving it for the central bank to do so.37 Taken to the extreme, this may be reflected as a legal basis that leaves it to the central bank to develop and define monetary policy objectives.
Where a central bank has both instrument and goal independence the body charged with holding the central bank accountable is not provided with an effective statutory yardstick to evaluate the performance of the bank.38 While a quantification of the monetary policy by the central bank itself could theoretically also function as a yardstick for the evaluation of its performance, it is questionable whether these self-announced quantifications amount to concrete legal rules, in particular in the light of potential deviations.
Given the fact that economic circumstances change, it does not seem practical to provide for a quantification of the monetary policy objective in the legal basis itself. One possible arrangement, to be found at the Bank of England, is to provide for the executive government to define a monetary policy target, which the bank thereafter has to reach in conducting monetary policy independent from government. Another arrangement, which gives the central bank a greater influence in defining the monetary policy objective, is to be found in the so-called contract approach. Here the monetary policy objective is quantified in an agreement between the government and the central bank. Since it is the central bank that, in the end, has to meet the quantified monetary objective in implementing monetary policy, it will be in its vital interest to reach an agreement with the executive government that will include a realistic target. At the same time the executive government also commits itself to certain goals, making it more difficult for it to criticize the central bank for its conduct of monetary policy in accordance with what has been agreed. The contract approach has been implemented in the central bank systems of New Zealand and Canada, both of which require government—central bank agreements on monetary policy targets.39
The strategy of the central bank to reach the ultimate objective(s) should be transparent. A clear understanding by market participants of the underlying framework on which central bank decisions are based will lead to a better understanding of the decisions taken. Market participants should know what the central bank has in mind when it sets interest rates and be able to clearly distinguish between the instruments of monetary policy and the operational target that is affected by the central bank’s action, but which is ultimately determined by market forces. To this end, the bank should announce the monetary policy strategy and explain its monetary policy decisions.
An explicit mandate enhances not only accountability but arguably also the credibility of the monetary policy framework of the central bank and helps to avoid the perception or reality that the central bank conducts an overly conservative monetary policy.40 The institutional setup of a central bank must ensure adequate communication of monetary policy to the outside world. The key to the understanding of this function of transparency is the interrelationship between central bank transparency and the public. As has been argued elsewhere, the effect of monetary policy on inflation and output growth (outcome) is determined not only by monetary policy decisions, but also by the expectations and the behavior of the public, based on their understanding of the bank’s strategy. The outcome arguably influences the input used by the central bank, that is, raw economic data, which in turn influence the bank’s decisions. The media, as intermediaries between the central bank and the general public, play a vital role in communicating the monetary policy strategy of the central bank to the general public and have a considerable influence on how the public understands the monetary policy pursued by the central bank as is shown in Figure 1.41
In facilitating the understanding of the general public regarding what the central bank does and does not do, publications and public statements can play a vital role. Press conferences and the publication of press releases can communicate the motivation for a certain policy decision. This also includes public access to the economic data underlying monetary policy decisions, such as money supply, inflation, GDP, and unemployment rates, as well as the announcement of the economic model(s) applied by the central bank. Moreover, the 1999 IMF Code has identified the public availability of the schedule of meetings of the policymaking body as a further element of transparency, since it becomes clear when policy decisions will be taken.42
Openness in the decision-making process of the central bank can further add to the understanding of what the central bank does. This can be reached mainly through the publication of the minutes of the meetings of the monetary policy board. Retrospectively revealing potential differences in opinions on the monetary policy board not only assists in judging the performance of central banks—and even individual central bank officials—with regard to the adequacy of their assessments, but also educates a larger audience in understanding that monetary policy is a consequence of judgments based on more or less reliable economic data rather than an exact science.43 Such an arrangement is of course far from undisputed, as it is often argued that the publication of such information could not only hamper free and open discussions on the monetary policy board of the bank, but also influence monetary policy decisions by the central bank. With regard to the latter argument, the arrangement in the Bank of England Act provides a good example of how market-sensitive information can be excluded from immediate publication. The first argument may be one that is primarily directed at the European System of Central Banks (ESCB) and ECB and its particular structure, which includes the governors of the central banks participating in the euro zone on the Governing Council, the monetary policy board of the ECB. Here it is feared that the open process of deliberations could result in undesired pressure on the national central bank governors.
Relationship with Government
In discussing central bank governance, the conduct of monetary policy arguably cannot be discussed without reference to the relationship with the executive and legislative branches of government.44 The three pillars identified above should guide this relationship.
Advocates of central bank independence argue rightly that the status of the central bank as an institution should be separate primarily from the executive, but also from the legislative power, that is, parliament.45 A central bank that forms part of the executive branch of government, for example, the Treasury, lacks institutional independence, which may result in a suboptimal monetary policy.
The legal basis of the central bank and its position in the overall constitutional system in which it is located play an important role in this regard. The independence of the central bank should be safeguarded by the legal basis of the central bank itself. However, this should not go as far as raising the central bank’s independence to a quasi-constitutional value. While this may result in a maximum amount of legally secured independence, this can deteriorate the democratic accountability of the central bank. The reason for this is that the legal basis can, in principle, function as the ultimate instrument of democratic accountability. While the one-time democratic legitimization of the central bank, which stems from the fact that the legislator has passed the respective legislation creating the central bank functions as an ex ante mechanism of accountability, this does not amount to a mechanism to hold the central bank accountable for its performance. Yet, in as much as parliament can amend the legislation it has once passed, it arguably possesses the most drastic instrument for holding the central bank accountable: it can decide to change the institutional structure of the central bank, thereby restricting its independent position and/or changing its tasks. In order to ensure that this does not result in a mitigation of the independence of the central banks per se, political systems will often include two or more veto players, making a legislative amendment a difficult exercise. Moreover, changing the legal basis of a central bank, which enjoys a high degree of credibility, may meet public resistance. Put in a nutshell, changing the legal basis may be considered the “nuclear option” in holding the central bank accountable.
Insulation of the central bank from undesirable political influence also influences the choice of the composition of the decision-making organs of the central bank and the existence of override mechanisms.46 From the point of view of independence, a central bank that features government officials with voting powers on the policy board and/or features an override mechanism is likely to be much more exposed to government influence than a central bank that excludes government participation entirely.
However, the potential for disputes between the central bank and government may arguably be the highest where the central bank is given a high degree of independence in the conduct of monetary policy. Where the government is firmly in charge of monetary policy, any potential conflicts with the central bank can easily be decided to its advantage by the former. However, this may have negative effects on transparency and, moreover, could drag monetary policy into the political arena. Where monetary policy is conducted by a central bank independent from government, conflicting monetary and general fiscal policy objectives of the central bank and government, respectively, call for the existence of a conflict resolution mechanism. Adequate communication channels between the executive and the central bank can help to avoid misunderstandings and false expectations, in particular on organs of the government regarding what monetary policy can and cannot do.
Mechanisms to resolve potential conflicts are thus closely related to the independence of a central bank. On the one hand, it is the independence that gives rise to the need for a mechanism to resolve conflicts. On the other hand, it is the existence of adequate conflict resolution mechanisms in the central bank law that functions as a safeguard—or pressure valve—for central bank independence. Where such mechanisms are missing, conflict on the direction that monetary policy should take may spiral out of control, resulting in unsolicited political pressure being exercised on the central bank and/or its officials. Rather than taking place in the open and being subject to the rules laid down in the central bank law, disputes take place behind closed doors and outside public, and possibly also parliamentary, scrutiny.
While the transparent conduct of monetary policy supports both parliament and the executive in their decision-making process regarding the performance of the bank, institutionalized contacts support the overall transparency of monetary policy and any existing dialogue between monetary and fiscal policy. One way to enhance the communication between the central bank and government is to allow for the participation of government officials in central bank organs and, in particular, on the monetary policy board of the bank. To be sure, such an arrangement is difficult to maintain if the governor of the central bank is considered by law to be responsible for monetary policy and, hence, charged with taking the relevant decisions.47 Representation on the monetary policy board creates a forum for government to make its views known on the general economic situation and the preferred course for monetary policy. At the same time those charged in the central bank with deciding on monetary policy can explain and motivate the approach to monetary policy.
Participation of government officials in decision-making organs of a central bank seems at odds with the model of a central bank, which is independent from government. Yet, whether or not this is actually the case depends on the concrete legal arrangements foreseen in the central bank law. In order to ensure the functional independence of the central bank, government officials should be excluded from participating in monetary policy decisions and, hence, should not have a voting right. Despite its extensive degree of independence, this arrangement can be found in existing central banks, such as at the ECB. The president of the Council of the European Union and one member of the European Commission are entitled to participate on the Governing Council of the ECB without a voting right.48 In countries in which such a passive role of government in the decision-making procedure of the monetary policy board is considered to be insufficient, an alternative may lie in providing government with the right to ask for a suspension of a monetary policy decision until the next meeting, thereby providing room also for the central bank to explain its approach. Such a possibility was foreseen in the legal basis of the Bundesbank prior to the transfer of monetary authority to the ECB and is still to be found, for example, in the Bank of Japan Law.49 Arrangements whereby government officials have a voting right are to be avoided, but in any event should ensure that government representatives do not form the majority on the monetary policy board, thereby effectively controlling all decisions.
Additional or alternative arrangements providing regular contacts between the central bank and government may include a provision in the central bank law allowing for central bank officials to participate in executive government meetings when issues related to the tasks of the central bank are discussed. Such an arrangement may also give the central bank a right to be consulted when the government addresses such issues. Such a setup, which can be found in a number of central banks, may be preferred by the central banks themselves, which often fear that direct government participation in monetary policy meetings may result in undesired influencing.50
From the point of view of democratic accountability, contacts should also exist with parliament. Including both executive government and parliament in holding the central bank accountable results in what Dutzler describes as the diversification of accountability, because the various branches of government differ in their obligations to the electorate and have different motives for holding a central bank accountable.51 As Majone has put it, “No one controls an agency, yet the agency is ‘under control.’”52
The role of parliament in holding the central bank accountable is a confirmation of the fact that a central bank, in principle, exercises monetary policy on behalf of the democratically elected parliament, which, at least in the national context, has delegated—but not abrogated—these powers. Exemplary in this regard is the Fed.53 Based on an obligation to submit semiannual monetary policy reports to Congress, the chairman of the Federal Reserve Board appears before the relevant standing committees of both the House of Representatives and the Senate where he is subjected to parliamentary scrutiny with regard to the performance of the Fed.54 Interestingly, a similar approach is taken with regard to the ECB, where the president of the Bank appears on a quarterly basis before the relevant standing committee of the European Parliament in an exercise referred to as monetary dialogue.55 Where such fora exist, parliament has the opportunity to review the performance of the central bank with regard to monetary policy on a regular basis, while the central bank is provided an opportunity to explain and justify its conduct.
As an alternative to appearances of central bank officials before parliamentary committees it is, in principle, also possible to envisage the executive government in between parliament and the central bank, such as was the case in the Netherlands prior to the enactment of the 1998 Bank Act. In such instances, the executive government rather than the central bank is answerable to the government for the conduct of monetary policy. Indeed, where the executive government is ultimately responsible for monetary policy, it takes the place of the central bank in as much as the former should be obliged to provide reasons for its conduct of monetary policy before parliament at regular intervals. However, this requires that the executive government be given instruments to hold the central bank accountable for its conduct of monetary policy, such as in the form of an override mechanism, which is further explained below. Otherwise, in practice no one institution would be accountable for monetary policy because the central bank would not be directly accountable to parliament, and the executive government could hardly be held accountable for the performance of monetary policy by a central bank over which it has no real authority.
Contact between the central bank and government should be foreseen in the legal basis of the central bank in order to form the basis for the regular and ongoing accountability of the central bank vis-à-vis parliament and/or the executive government. De facto arrangements remain the second best option given their lack of clarity and the fact that it is essentially left at the discretion of a central bank to uphold the practice.56 Informal contacts entail a higher risk of being abused, that is, to put political pressure on the central bank to pursue polices other than those determined in the legal basis and the policy target. This not only conflicts with the independent position of a central bank, but also runs contrary to keeping the bank accountable. Central bank systems that include clear rules defining the relationship between the central bank and the executive government are preferable to systems without an explicit reference to independence but also without any reference to such rules.
A clear definition of the relationship between the central bank and government arguably also must entail mechanisms that apply in the case of conflicts between an independent central bank charged with the conduct of monetary policy and the executive government charged with the conduct of fiscal policy. It is presently submitted that an override mechanism can function as such a conflict resolution mechanism. The existence of such a directive clause, as it is also sometimes referred to, can also be regarded as an important instrument of democratic accountability. This is the case not only in the sense that the central bank may be overridden in instances of suboptimal performance (thus serving as a means of sanctioning) but also in the sense that with the executive government in charge of this instrument the overall responsibility of the latter for the economic policy is recognized, even if the override mechanism is never put into practice.57 With an override mechanism it is, in principle, acknowledged that policy conflicts and disagreements over monetary policy may arise between the central bank and the government. Override mechanisms can channel these conflicts.58 With the existence of an override mechanism the basic premise is recognized that “…in a democratic society the government should in the limit be able to insist on its views.”59 In countries where the executive government is thought to be ultimately responsible for monetary policy, the existence of an override mechanism can build the required bridge between the conduct of monetary policy by the central bank and the overall responsibility of the executive government vis-à-vis parliament.
To be sure, override mechanisms constitute the single most problematic feature in the institutional setup of a central bank because they are arguably at odds with the notion of central bank independence. However, the impact of such a mechanism on the independence of a central bank is largely determined by the concrete arrangements. First, the application of the override mechanism should not be unconditional. Ideally, the legal basis of the central bank should lay down in detail the conditions under which an application of the override mechanism is permissible by defining the exceptional circumstances in which the central bank may be overridden.60 Rather than to provide the executive government with carte blanche once it has taken the decision to apply the override, the legal basis should oblige the former to define and make public the alternative objectives to be observed by the central bank for the time of the application of the override, thereby committing the executive government to a certain course of action.61
Moreover, the decision to apply the override should be subject to review, thereby excluding political abuse of the mechanism. The application of the override by the executive government should be made subject to parliamentary approval or the central bank should be given the right to appeal against the application of the override mechanism, or both.62 Moreover, the application of the override mechanism should be limited in time from the outset for the obvious reason that the executive government may otherwise permanently take control over monetary policy. Ideally, the legal basis will stipulate a maximum period for which the override can be applied at any one time.
As an alternative to a full-override mechanism, as has been described above, the central bank law may also give government the right to delay a decision on monetary policy from being taken. While this does not give the executive government a right to ultimately block a decision from being taken, this mechanism arguably provides for a cooling-off period in cases of disputes as well as time for further dialogue.
Toward a Model Central Bank Law?
This chapter set out to establish in the short space available the basic elements forming the basis of central bank governance. This inevitably leads to the question of whether and to what extent these pillars of central bank governance and the consequences they have on the institutional structure and tasks of a central bank can form the basis for a model central bank law or, as Poole refers to, “an Optimal Central Bank Law.”63 Put differently, should the emphasis lay on the drafting of a blueprint or rather the establishment of principles that should be taken into account when designing or reforming a central bank law? Given the noticeable trend toward supranational monetary policy authorities, or at least the standardization of the rules on the basis of which national monetary policy authorities operate, this is arguably more than just an academic query.64
It could be argued that the introduction of the European System of Central Banks serves as an example of how central banks can be subjected to a particular model with regard to their institutional setup. In the case of the central banks of the member states, European Community law requires them to be independent.65 As a result, all of these central bank laws have been, and, in the case of potential future member states, possibly still are, in the process of being adjusted.66 However, this is not an example for the successful application of a particular central bank model to several central banks. First of all, the model concerned only a particular, albeit important, aspect of the institutional structure of a central bank, namely independence. Moreover, the reason why the central bank laws where aligned in the first place was that monetary policy authority was transferred from the level of the member states to the ECB. The fact that the central banks were deprived of their primary function anyway made it relatively easy for the member states to accept an amendment of their central bank structures in this regard.
From a purely economic point of view, it could be maintained that such a model could be established by first of all identifying those objectives that a central bank should pursue and, thereafter, by establishing the modi operandi along the lines highlighted above. Translated into concrete legal arrangements this would then form the ideal central bank. However, this approach is problematic given that it rests on the assumption that only one particular set of objectives and set of instruments to achieve them is plausible. However, as has been highlighted throughout this contribution with regard to the conduct of monetary policy and the relationship between the central bank and government, different institutional arrangements are feasible. In balancing independence, accountability, and transparency there is room for preferences, at least to some extent, in putting more emphasis on one or another element of governance. This is a choice that should rest with the legislative branch of government in the respective country. Indeed, in some instances the constitutional setting in which a particular central bank operates may even require particular legal arrangements related to the governance of the central bank that are different from those necessary for another central bank.67
It will be virtually impossible to take into account the diversity of legal systems in which central banks operate in a single model central bank law. This rules out the application of a one-size-fits-all method to different central bank systems.68 Central bank laws have to be observed against the background of the political, economic, and legal environment in which they are situated. This is not only the case when comparing existing central bank systems with one another, but also when considering new, or when proposing the reform of existing, central bank systems. Indeed, this need for diversity has also been recognized in some instances as attempts have been made to establish model central bank legislation.69
Preference should therefore go to the establishment of a code of good governance that could not only function as a benchmark for the assessment of central bank legislation, but also as a blueprint for the institutional structure of future central banks. As a result of the development of such practices, an international standard of central banking could emerge. Indeed, some may argue that such a standard has already emerged from practice, as a growing number of central bank systems recognize the three pillars of central bank governance in one way or another.
Already first steps have been taken toward the establishment of guidelines for good practices, whereby the IMF plays an important role in this regard. The latter conducts so-called Safeguard Assessments at borrowing central banks in order to reduce the risk of misuse of IMF resources and misreporting to the IMF. This assessment focuses on a number of areas of a central bank’s governance structure,70 including the legal structure and independence of the central bank. It has to be noted, however, that this assessment focuses on areas of the central bank legislation that are considered to contribute to safeguarding IMF resources and as such cannot be simply converted to an institution-building exercise.71 At the same time, it may be said that these assessments provide the IMF with valuable experience in analyzing central bank legislation and include elements for the establishment of a code of good practices for central banks, namely with regard to the conduct of monetary policy and the relationship with the executive government and parliament. The same holds true for the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies. Arguably, the implications of the proposed features already reach beyond independence and to some extent also touch upon transparency and accountability issues.
While establishing a code of good governance may over time enhance governance of central banks, this will not be a panacea. Indeed, it may be insufficient to provide for a central bank law that is based on the three pillars highlighted above in order to fully ensure that the central bank can fulfill its tasks optimally. Central bank governance has implications beyond the realm of the institutional structure of the central bank, as this requires what is presently referred to as an adequate operational environment.
While a central bank should be independent from government to a certain extent, it would at the same time be a mistake to believe that it could operate in a state of complete isolation from outside influences.72 It is questionable whether a central bank can offset the effects of a government that pursues an irresponsible economic policy. Monetary policy instruments, as Asser puts it, “are designed for the conduct of monetary policy. They are not designed for other macroeconomic policies.” Yet, these other macroeconomic policies, such as fiscal policy or wage policies, can affect monetary policy.73
Therefore the successful implementation of a monetary policy objective such as price stability also relies on a proper macroeconomic policy framework, of which monetary policy forms an important part. This has two implications: first, there must be a political consensus on the need for a sound macroeconomic policy and arguably on the need for a sustainable government financial position. Second, next to this there must be a legal framework in place that commits not only the central bank but also the government to the attainment of the agreed-upon macroeconomic policy objectives. The success of rules aimed at providing some form of coordination between economic and monetary policy is less than certain, as highlighted by the example of the EMU rules on economic coordination.74
An institutional setting providing for sound governance arrangements can help to achieve, but not single-handedly put in place, central bank credibility. For Issing “the life of a currency depends on the trust of the population in the stability of the money!” He continues to observe that “trust in the stability, in the credibility of politics results in lower interest rates, higher investments, and more employment.” Issing describes this as being “the contribution of monetary policy.”75 Independence, accountability, and transparency cannot instantly build trust. The extent to which a central bank is embedded in society is built over time. Where existing, the credibility that a central bank enjoys can, to some extent, legitimize the policy-making of an independent central bank that is accountable only to a limited extent. The position of the Bundesbank vis-à-vis the German government and the general public in Germany prior to European economic and monetary union may serve as an example in this regard. As the keeper of the deutsche mark the Bundesbank had developed a strong reputation and a high degree of credibility not only in the financial markets but also with the general public. The Bundesbank was perceived as one of the cornerstones of German post-war economic success. This cemented its independent position vis-à-vis government and, to some extent, made the lack of mechanisms of democratic accountability acceptable.
However, the history of the Bundesbank also highlights the limits of the influence of a central bank on economic policy choices that enjoy public support. In the course of German reunification the monetary system of the German Democratic Republic (GDR) was integrated into that of the Federal Republic of Germany and the Bundesbank extended its activities to the new federal states, thereby replacing the Staatsbank, the central bank of the GDR. The Bundesbank was very skeptical about an early monetary union and opposed the one-to-one conversion rate that had been advocated by the West German federal government and thereafter was implemented in the Treaty Establishing a Monetary, Economic, and Social Union. The Bundesbank’s preference for a two-to-one conversion rate was dismissed.76 At the time it was feared that the adoption of the Bundesbank’s proposal would have triggered considerable negative sentiments, and not only among the East German population. Public pressure resulted in the disregarding of the Bundesbank’s advice. This conflict between the federal government, in charge of the exchange rate policy, and the central bank, charged with the conduct of monetary policy, had reportedly been the motive behind the subsequent resignation of the president of the Bundesbank.77
Conclusion
This chapter set out to develop what are arguably the three pillars on which central bank governance must rest. What has emerged from this analysis are principles rather than a concrete central bank law model.
The complexity of the exercise lies in providing for all of the three elements in one and the same legal basis. In the previous sections it could be seen that, contrary to what might still be the prevailing sentiment in some quarters, this does not necessarily have to result in the (unsuccessful) attempt to square the circle. Concepts like independence, accountability, and transparency are reconcilable. Yet, certain tensions between these elements of governance cannot be ignored and have to be observed when establishing a code of good governance. A central bank that is entirely independent to not only pursue but also define monetary policy is very difficult to hold accountable for its performance. Moreover, without proper conflict resolution channels, disputes between the central bank and government may spin out of control. Furthermore, complete independence is at odds with the general notion that government, and thus elected politicians, is in principle answerable for economic policy. Indeed, as Siklos has emphasized, governments may not be sufficiently accountable if they are not responsible for setting monetary policy.78 Ultimately, as Howarth and Loedel have observed: “In a democratic society, transparency and accountability are essential if central bank independence is to remain politically acceptable.”79 Providing for a sufficient degree of transparency can help not only to increase the understanding of monetary policy and, as a somewhat cynical observer of events may add, the limited extent to which this is an exact science, but also to ensure that conflicts within the central bank and between the central bank and government are carried out in the open. This also functions as a restraint for government and serves to strengthen the position of the central bank independent from government and, ultimately, its credibility.
It is presently recognized that in some instances suggestions made throughout this contribution may have implications reaching beyond the structure of the central bank and the way in which it is governed. Indeed, the difficulty may rest not only in designing a central bank that is independent, accountable, and transparent all at the same time, but also in the creation of a constitutional and political environment in which such a central bank can successfully operate.80 The impressive volume of documentation provided with the 1999 IMF Code of Good Practices on Transparency in Monetary and Financial Policies offers some indication as to the extent of work involved.
Notes
International Monetary Fund, The IMF and Good Governance—A Factsheet (Washington: IMF, April 2003).
T. Lybek, “Central Bank Autonomy, Accountability, and Governance: Conceptual Framework,” in this volume of Current Developments in Monetary and Financial Law (Washington: IMF, 2005), pp. 133–57.
This includes, among other issues, strategic and risk management, human resource management, and the role of ethics.
According to Article 108 of the EC Treaty, member states are obliged to ensure that national legislation including the status of its national central bank is compatible with the EC Treaty. According to Article 109, neither the European Central Bank nor the national central banks participating in the European System of Central Banks are allowed to seek or take any instructions from Community institutions or member state institutions.
For an overview and assessment of studies on these issues see Berger, De Haan, and Eijffinger, “Central Bank Independence: An Update on Theory and Evidence,” CESifo Working Paper Series (Cambridge and London: MIT Press, 2000), with further references. Interestingly, findings of empirical evidence still seem to vary quite considerably.
F. Amtenbrink, The Democratic Accountability of Central Banks—A Comparative Study of the European Central Bank (Oxford and Portland, Oregon: Hart Publishing, 1999), at 11 et seq., with further references.
O. Issing, as quoted in G. Howarth and P. Loedel, The European Central Bank—The New European Leviathan? (Basingstoke: Palgrave McMillan, 2003), at 119.
C. Zilioli and M. Selmayr, “The European Central Bank: An Independent Specialized Organization of Community Law,” 37 Common Market Law Review (2000), at 591–644. But see R. Torrent, “Whom Is the European Central Bank the Central Bank Of? Reaction to Zilioli and Selmayr,” 37 Common Market Law Review (2000), at 1229–41; and F. Amtenbrink and J. De Haan, “The European Central Bank—An Independent Specialized Organization of Community Law—A Comment,” 39 Common Market Law Review (2002), at 65–76.
These or similar classifications are generally in all studies. See S.C.W. Eijfinger and E. Schaling, “Central Bank Independence: Criteria and Indicies,” Department of Economics Research Memorandum, FEW 584, University of Tilburg (1992), at 18; S.C.W. Eijffinger and J. De Haan, “The Political Economy of Central-Bank Independence,” Special Papers in Economics No. 19, International Finance Section, Department of Economics, Princeton University, Princeton, N.J. (1996). Some of these elements are revisited in the section discussing central bank transparency.
Amtenbrink, supra note 6, at 27 et seq.
Amtenbrink and De Haan, supra note 8, at 65–66.
This notion is discussed further in this chapter in the section on central bank transparency beginning at p. 106.
M. Deane and R. Pringle, The Central Banks (London: Viking, 1993), at 320; R.M. Lastra, “The Independence of the European Central Bank,” 33 Harvard International Law Journal (1992), at 475–519.
In the context of the European Central Bank, see Amtenbrink and De Haan, supra note 8.
S. Maxfield, “A Brief History of Central Bank Independence in Developing Countries,” in A. Schedler, L. Diamond, and M.F. Plattner, eds., The Self-Restraint State: Power and Accountability in New Democracies (Boulder: Lynne Rienner Publishers, 1999), at 291, with further references, which points out that “… concern over the threat central bank independence may pose to democratic accountability could also be somewhat misplaced in a developing country context.”
D.M. Boylan, Defusing Democracy—Central Bank Autonomy and the Transition from Authoritarian Rule (Ann Arbor: University of Michigan Press, 2001), at 226.
L.W. Gormley and J. De Haan, “The Democratic Deficit of the European Central Bank,” 21 European Law Review (1996), at 95–112; Amtenbrink supra note 6, at 36–61.
See infra the section dealing with good governance in the conduct of monetary policy.
See, e.g., S.C.W. Eijffinger and P.M. Geraats, How Transparent Are Central Banks, CEPR Discussion Paper No. 3188 (London: 2002); J. De Haan, F. Amtenbrink, and S. Waller, “Transparency and Credibility of the European Central Bank,” 42(4) Journal of Common Market Studies (2004), at 775, with further references.
A. Posen, “Six Practical Views for Central Bank Transparency,” Institute for International Economics, Working Paper (2002), at 1.
R.M. Lastra, “How Much Accountability for Central Banks and Supervisors?” 12(2) Central Banking (2001), at 69–75.
B. Winkler, “Which Kind of Transparency? On the Need for Clarity in Monetary Policy Making,” ECB Working Paper 2000, No. 26.; Eijffinger and Geraats, supra note 19; De Haan, Amtenbrink, and Waller, supra note 19.
Deane and Pringle, supra note 13, at 313.
P. Day and R. Klein, Accountabilities: Five Public Services (London and New York: Tavistock Publications, 1987), at 22.
IMF, Code of Good Practices on Transparency in Monetary and Financial Policies (1999), http://www.imf.org/external/np/mae/mft/code/eng/code2e.pdf [hereinafter the 1999 IMF Code].
Id. at 2.
Id.
E.g., D.G. Mayes, “Accountability for the Central Bank in Europe,” paper prepared for the 11th Lothian Conference (A Central Bank for Europe), November 19, 1997, Whitehall Place, London.
Posen, supra note 20, at 168.
See infra the section dealing with monetary policy formulation and communication.
The 1999 IMF Code differentiates among the clarity of roles, responsibilities, and objectives of central banks for monetary policy; the open process for formulating and reporting monetary policy decisions; the public availability of information on monetary policy; and the accountability and assurances of integrity by the central bank.
P.L. Siklos, “Framework for the Resolution of Government—Central Bank Conflicts: Issues and Answers,” in Current Developments of Monetary and Financial Law, Vol. 3 (Washington: IMF, 2005), at 375. See also, infra the section dealing with the central bank’s relationship with government.
E.g,. V. Grilli, D. Masciandaro, and G. Tabellini, “Political and Monetary Institutions and Public Financial Institutions in the Industrial World,” 6(13) Economic Policy (1991), at 341–92; A. Cuckierman, S.B. Webb, and B. Neyapti, “Measuring the Independence of Central Banks and Its Effects on Policy Outcomes,” 6(3) World Economic Review (1992), at 353–98; A. Alesina and L.H. Summer, “Central Bank Independence and Macroeco-nomic Performance: Some Comparative Evidence,” 25(2) Journal of Money, Credit and Banking (1993), at 151–62.
J.O. de Beaufort Wijnholds and L.H. Hoogduin, “Central Bank Autonomy: Policy Issues,” in J.O. de Beaufort Wijnholds, S.C.W. Eijffinger, and L.H. Hoogduin, eds., A Framework for Monetary Stability (Dordrecht: Kluwer Academic Publishers, 1994), at 75–95.
Art. 105(1) EC Treaty.
F. Amtenbrink, “On the Legitimacy and Accountability of the European Central Bank: Legal Arrangements and Practical Experiences,” in A. Arnull and D. Wincot, Accountability and Legitimacy in the European Union (Oxford: Oxford University Press, 2002), at 149–50.
This is the case, for example, for the European Central Bank, since Article 105 (1) EC Treaty does not define the term “price stability” in any way.
To be sure, this does not necessarily have to result in a nontransparent conduct of monetary policy if, and to the extent that, the bank makes its preferences public.
In Canada, the government and the central bank agree on an Inflation Control Target (ICT). In the case of New Zealand this takes place in a Policy Target Agreement (PTA).
C. Freedman, “Central Bank Independence,” in P. Mizen, ed., Central Banking, Monetary Theory and Practice: Essays in Honour of Charles Goodhart, Vol. 1 (Cheltenham: Edward Elgar Publishing, 2003), at 103.
Adapted from Winkler, supra note 22. J. De Haan and F. Amtenbrink, “A Nontransparent European Central Bank? Who Is to Blame?” Working Paper, University of Groningen (2003). See also, J. De Haan, S.C.W. Eijffinger, and S. Waller, “The European Central Bank, Credibility, Transparency and Centralization,” CESifo Working Paper Series (Cambridge and London: MIT Press, 2005), at 83 et seq.
IMF, supra note 25.
The Bank of England Act 1998 provides a positive example in this respect.
The term “government” is used as a generic term to encompass executive government and parliament.
R. Smits, The European Central Bank: Institutional Aspects (London: Kluwer Law International, 1997), at 155–56; Roll Report, E. Roll, (chairman), Independent and Accountable, A New Mandate for the Bank of England, Report of an Independent Panel chaired by Eric Roll (London: Center for Economic Policy Research, 1993), at 21 et seq.
This is referred to as organizational or political independence. E.g., D. Gros and N. Thygesen, European Monetary Integration (London: Longman, 1992), at 420 et seq.
This is the case at the Bank of England and the Reserve Bank of New Zealand.
Art. 113, EC Treaty.
Art. 19, Bank of Japan Law.
The ECB has to be consulted on any proposed European Community acts falling within its field of competence and, also, on amendments of its institutional structure (Art. 105 (4) EC Treaty and Art. 48 EU Treaty). The president of the ECB has a right to participate in meetings of the Council of the European Union when the latter discusses issues relating to the tasks and objectives of the ECB. In Botswana, the Bank acts as financial adviser to the government (sec. 43 Bank of Botswana Act). In Canada, the Minister of Finance and the governor of the Bank are supposed to consult regularly on monetary policy, and on its relations to general economic policy (sec. 14(1) Bank of Canada Act). The Bank of Japan Law sets out that the Bank shall always maintain close contact with the government and exchange views sufficiently (Art. 4).
B. Dutzler, The European System of Central Banks: An Autonomous Actor? (Vienna and New York: Springer, 2003), at 110.
G. Majone, Regulating Europe (London: Routledge, 1996). This obligation used to be based on the Full Employment and Balanced Growth Act of 1978. The reporting was also referred to as Humphrey-Hawkins procedure, after the two sponsors of this bill. While the practice continues, the Full Employment and Balanced Growth Act of 1978 was repealed in 2000.
As cited in Dutzler, supra note 51.
For details, see Amtenbrink, supra note 6, at 287 et seq., with further references.
For a short analysis of these hearings, see Amtenbrink, supra note 36, at 157 et seq. Interestingly, European Community law does not foresee the appearance of the national central bank governors participating in the Governing Council of the ECB before the European Parliament. Depending on the legal arrangements in the different countries of origin, governors may be obliged to appear before their respective national parliament.
Thus, for example, in the case of the ECB, not all regular contacts are prescribed by European Community law.
Amtenbrink, supra note 6, at 52.
Siklos, supra note 32, at 5.
Freedman, supra note 40, at 105.
In the case of the Bank of England, the legal basis (sec. 19, The Bank of England Act) states that the Treasury, after consulting with the governor of the Bank, can issue directions only if required in the public interest and by extreme economic circumstances.
In the case of the Reserve Bank of New Zealand, the government has to announce new policy targets (sec. 12, Reserve Bank of New Zealand Act).
In the case of the Bank of England, the Treasury order has to be laid before parliament, which thereafter has to approve the order, by a means of a resolution within 28 days. Otherwise the order ceases to have effect.
W. Poole, “Institutions for Stable Prices: How to Design an Optimal Central Bank Law,” Review of the Federal Reserve Bank of St. Louis (September/October 2003), at 1–5.
Take, for example, the case of the Banque Centrale des Etats de l’Afrique de l’Ouest and the West African Economic and Monetary Union or the model central bank legislation drafted by the Southern African Development Community (SADC).
See supra the section dealing with central bank independence.
For the impact of accession to the European Union on the structure of the national central banks, see Amtenbrink, supra note 6, and F. Amtenbrink, “Economic and Monetary Policy (in the Framework of the EMU),” in A. Ott and K.M. Inglis, eds., Handbook on European Enlargement (The Hague: T.M.C. Asser Press/Kluwer Law International, 2002), at 693–706.
Such as is the case when, according to the constitution, government is answerable to parliament for all of economic policy including monetary policy.
See also P.L. Siklos, “Varieties of Central Bank—Executive Relationships: International Evidence,” in this volume of Current Developments in Monetary and Financial Law (Washington: IMF, 2005), pp. 167–91.
SADC Draft Model Central Bank Legislation, April 3, 2003. The explanatory note states explicitly that central banks are allowed to modify the model legislation, depending on the need for the particular country.
IMF, “IMF Adopts Safeguards Assessments as a Permanent Policy,” Press Release No. 02/19 (April 5, 2002).
T. Catsambas, “Safeguard Assessments and Central Bank Legislation,” in Current Developments in Monetary and Financial Law, Vol. 3 (Washington: IMF, 2005), at 65.
This has already been discussed above in the section dealing with monetary policy formulation and communication policy of the central bank.
T.M.C. Asser, “Relative Autonomy of the Central Bank,” in Current Developments in Monetary and Financial Law, Vol. 3 (Washington: IMF, 2005), at 366.
F. Amtenbrink and J. De Haan, “Economic Governance in the European Union—Fiscal Policy Discipline versus Flexibility,” 40 Common Market Law Review (2004), at 1075–76.
Author’s translation of “Eine Währung lebt vom Vertrauen der Bevölkerung in die Stabilität des Geldes! Vertrauen in die Stabilität, in die Glaubwürdigkeit der Politik wirkt sich aus in niedrigen Zinsen, höheren Investitionen und mehr Beschäftigung. Das ist der Beitrag der Geldpolitik,” European Parliamentary Hearing during the installation of Issing, 1998.
The Bundesbank was concerned about an excessively inflationary exchange rate.
H. Tietmeyer, “Reflection on the German Treaty Negotiations of 1990,” in S.F. Frowen and R. Pringle, eds., Inside the Bundesbank (London: MacMillian, 1998), at 68–109.
Siklos, supra note 32.
Howarth and Loedel, supra note 7, at 123.
In some regards, this is what the word “democratic” in democratic accountability stands for.
