BOE Economist Haldane Says Policy Independence Can't Be Absolute

The policy independence of the Bank of England should not be absolute but remains key on an operational level, according to Chief Economist Andy Haldane.

“Policy independence could not and should not be absolute,” Haldane said at an event in London on Monday. It’s not the case that “policy is somehow detached from politics or society. Far from it.”

A barrage of criticism of the BOE by politicians including Prime Minister Theresa May has sparked a debate about central bank independence in the U.K. Ed Balls, one of the architects of the BOE in its current form, published a paper last week saying that the concept needs a rethink, encouraging the bank to give up some political autonomy to preserve the freedom to reach its goals as it sees fit.

Officials should not return to the politicized policy making seen during past populist surges which led to issues such as hyper inflation and “damaged the poor,” Haldane said. However, he did advocate some limits to central banks’ independence, as seen under the current U.K. system.

“In the U.K. the really big decisions about the framework of monetary policy, the objectives, are set not by the Bank of England but by the government, by parliament, in statute,” Haldane said. “That’s just as it should be because these are essentially social choices. And an after-the-fact judgments on how well the BOE are doing in setting monetary policy, those too are made not by the BOE but by directed elected representatives of society in parliament. That’s as it should be.”

The BOE, the U.S. Federal Reserve and the European Central Bank have all come under attack in recent months by politicians arguing that years of ultra-loose monetary policy has helped enrich asset holders while hurting savers. BOE Governor Mark Carney said last week that the focus on monetary policy as the source of the ills in the global economy is a “massive blame deflection exercise.”

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