Price stability was indicated as the primary objective of monetary policy but – as the Final Report of the conference maintained – if it was to be achieved, it had to be entrusted to central banks that were independent of their governments. 3 These principles were forgotten for many years after the Second World War.
The conviction that a certain degree of inflation was necessary to support employment and growth came to the fore in economic thought and in the minds of policy makers. In many countries monetary policy was dominated by budgetary requirements (fiscal dominance) and central banks acted as buyers of last resort of government securities when they came onto the primary market.