PIMCO has an out-of-the-box idea
Taking away hard-fought central bank independence sounds crazy at first but PIMCO's Joachim Fels makes a fascinating argument.
- Central bank independence is a relatively new idea. For instance, it didn't come to the Bank of England until 1993 -- Year 303 of its existence
- Central bank independence was needed for the great battle against inflation
- In a deflationary or crisis world, central bank decisions are inherently political and redistributionary
- In a future of helicopter money and monetization, this will be a bigger problem
- Central banks would be better equipped to counter today's challenges if they worked in tandem with governments
- Removing central bank independence would make central banks and governments more accountable and would stop the practice of making central banks scapegoats for poor government or a lack of action
- Central banks could more effectively redistribute helicopter money
- The act of removing independence alone would raise inflation expectations
Fels writes: "Critics contend that the main problem with central bank independence is that it was invented to solve a problem - high inflation - that no longer exists. Does their independence hinder central banks from pursuing the most direct and efficient solutions to today's problems? Trust me, for an economist born and raised in Germany to believe that the independent Deutsche Bundesbank should be the benchmark for all central banks, this is not an easy question to ponder. But the reality remains: Aggressive independent monetary policies across the world haven't yet delivered inflation, and fiscal foot-dragging persists."
I think this experiment (like all monetary policy experiments) will get underway in Japan. If it can help solve mountain of problems there, it's an idea that could have legs in a world that's short on ideas.
