He argued quite correctly that such complex and delicate relationships cannot be established full-blown by a piece of legislation. It must be the result of years of experience and the slow growth of political conventions. Exter Report testifies to the fact that the independence of the Central Bank should be attained and maintained by people in both the Central Bank and the Ministry of Finance and working with a “moral consciousness” regarding the well-being of the whole society rather than narrow self-interest objectives. Conclusions Six decades is a long period during which a society should necessarily undergo tremendous political, social and economic transformation. The onslaughts of new technology, globalization and advancements in fast communication systems have changed the ideals of the people of all societies throughout the globe. Hence, one may tempt to question whether the ideals expressed by Exter more than a half a century ago are still valid and relevant. Though the ideals of societies have changed, the core principles that are embodied in the philosophy of central banking have not changed over the time. In fact, they have become much more hardened today than 60 years ago. Nations throughout the world have gone for price stability as a necessary prerequisite for continuous prosperity. Hence, the hands of central bankers have been strengthened much more today in all parts of the world to facilitate central banks to function independently and make appropriate policies for monetary stability.
Exter argued that that should be the case because of the inflationary or deflationary effects which the payment or the non-payment of profits can have on an economy. For instance, when the profits are transferred to the government, the reserve money will increase, raising both money supply and creating inflationary pressures. Exter argued that such an expansion that would have arisen from the Central Bank’s own contribution to inflation by raising its domestic assets should be prevented. Domestic assets of the Bank could go up due to the Bank’s lending to the Government or the commercial banks. If these assets have increased too rapidly, the result would be inflation through a similarly rapid increase in money supply. Exter’s prioritization of the appropriation of profits intended to prevent the Bank from paying to the government such profits earned by inflating the economy. But, he did not have any objection to the transfer of profits to the government, if such profits have been earned on the Bank’s investment of its foreign assets. Since the foreign assets are maintained by the Bank on behalf of the government, the latter have a right to receive its due rate of return. So, Exter concluded that if the domestic assets have not expanded (in other words, if the Central Bank has not inflated the economy), “there should be no ill-effects from paying out the Central Bank’s profits to the Government, especially since in this case the Government could not have been obtaining excessive accommodation from the Central Bank”.