Central Banks Have Flaws. Fixing Them Is Fraught

Is central bank independence only for the good times? This is the uncomfortable question that iconic emerging markets are pushing to the fore. This is no crackpot fringe seeking a return to the gold standard or urging interest rates be placed entirely in the hands of elected officials. Proposals that might conceivably rein in autonomy, or nibble around the edges, have come from countries depicted as comers in global economics. Politicians and academics who want a refit of monetary affairs ought to be careful how — and where — they tread.

If proponents seeking to clip central bank power don’t pick their shots correctly, the course of economic life in their nations stands to be reshaped, and probably for the worse. A prior generation of leaders figured out, albeit under pressure from markets and the International Monetary Fund, that some kind of independent agency with a numerical inflation target was the least bad way to go. Not flawless, but more feasible than some of the alternatives. This is the terrain on which a struggle for policy direction is playing out in Brazil and South Africa. An earlier skirmish in Indonesia left the existing regime largely intact. Will other countries be as lucky, and will the debate be confined to EM?