An article in El País by José García Montalvo raises the issue of the danger of jeopardizing Central Bank Independence (CBI) in the current crisis. Montalvo is an economist that usually writes very sensible arguments on housing economics and other topics. This time, however, I respectfully disagree with him. CBI can certainly play a role in normal times and when the role of the central banker is focused on a very narrow set of dimensions, one if possible (like setting an interest rate). However, in periods of severe crisis, and when the role of the institution has expanded to include issues of financial regulation, the case for independence is much weaker. This is because in a severe crisis distributive issues become much more important, and because in a multi-dimensional context, things are much more difficult to measure, and hence, monitoring the role of the central banker by the public opinion becomes very problematic. And in a democracy, monitoring is very important if society grants independence and discretion to a non-elected institution. This is well known by the authors who first proposed the idea of central bank independence, so it is no surprise that a reasonable conservative economist, such as Kenneth Rogoff, now argues that the idea of a conservative independent central banker only focused on delivering very low inflation is of second order compared to trying to fight a crisis that is being suffered by the most vulnerable sectors of society.
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