Political Control of Central Banks

I had mentioned in passing a few weeks ago that a lot of evidence has accumulated over the last 30 years showing that independence of central banks from the political process is associated with higher growth.

This is playing out in a big way in Argentina over the last week. President Kirchner (who – get this -succeeded her husband, President Kirchner) fired her central bank president because he wouldn’t let the government access, and presumably spend, the foreign reserves (currency of other countries – primary the U.S.) held by the central bank. He refused to be fired, and got a judge to reinstate him. The Argentine Congress is on his side. She put up guards to keep him from work. Oh … FWIW … her husband wants to run for President again in the next election.

There have also been moved in South Korea, and Japan to reduce the independence of central banks. Opposition to Bernanke is also, in part, a gambit to reduce independence (it probably is not an accident that his reappointment was in play again only after a major electoral defeat).

There are many sources you can read on these events in both The New York Times and The Wall Street Journal, and you should search a few out. You can start with the front page of the latter from Monday, which featured two of them.