SAFEGUARDING CENTRAL BANK INDEPENDENCE1 Javier Guzmán Calafell2 The broad turn towards central bank independence can be traced back to the 1970s and 1980s. Many countries were experiencing high inflation. Therefore, attention focused on overcoming ‘time inconsistency’, a problem inherent to monetary policy.
When markets are booming, when every day there seems to be an announcement of a major new project or deal, it is tempting to be carried along by this psychology. Bankers begin to fear that they are losing out on profit opportunities that are being exploited by their competitors.