Central bank independence helped bring the world low inflation. Now falling inflation could take that independence away. The nearer that interest rates fall towards zero, the closer central banks have to work with their government counterparts. This irony is particularly delicious in the UK, where giving the Bank of England operational freedom from political control was one of Gordon Brown’s first acts as chancellor of the exchequer in 1997.

Monetary purists may shudder at the prospect. Yet, with the exception perhaps of the European Central Bank, this independence has always been relative. The Bank of Japan has supposedly been independent since 1997. But it is required to “maintain close contact with the government and exchange views sufficiently so that [policies are] mutually harmonious”. Even the US Federal Reserve, “an independent entity within government”, gained full autonomy only in 1951. Six decades later, it is again printing money to buy government (and corporate) bonds – as the Bank of England now says it will do.

Similar policies, as is often said, brought hyperinflation to Zimbabwe and the Weimar Republic. But there are important differences. The first is a commitment to an inflation target. The second is the government will indemnify central banks for any losses from buying these bonds. That might give finance ministries the ultimate say-so on policies, circumscribing bank independence. The Bank of England, for example, is allowed to buy up to £50bn of private securities, as “authorised by the Treasury”. Yet this mechanism also saves western central banks from putting their balance sheets directly at risk, which, rather inadvisably, they have been doing until now.

The credit crunch has munched its way through the world financial system, starting with the shadow banking system of hedge funds, then commercial banks. Now it has arrived at the high table of central banks themselves – to nibble away at their independence too.

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