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Essay / Research Paper Abstract
This 3 page paper argues that central banks can never be truly independent as there are always routes of potential political influence. The paper looks at how this might occur and how banks cope with this risk using control mechanisms. The bibliography cites 4 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEcentbankind.rtf
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Unformatted sample text from the term paper:
is enshrined in many economic theories as well as being seen in practice in the requirement as part of the convergence requirements for the membership if the EU single currency.
The aim of this is to separate the economic controls that the bank can exercise, such as the setting of interest rates, from those who may want to gain political
favour using economic tools. However, we can argue that even were there appears to be a separation of the economic and the political management of the economy, in reality they
are too closely linked and as such there can never be a truly independent central bank. One of the more recent banks
to gain independence has been the Bank of England. It was only in 1997 that the Bank of England was granted the freedom to make its own decision regarding monetary
policy and interest rates (Financial Times, 1998). This was later backed up by legislation the form of the Bank of England Act 1998 (HMSO, 1998). Despite this we can still
argue that the independence that the Bank of England benefits from is limited. There are regular policy meetings between the government and the Bank of England. Therefore, it would be
naive to believe that political pressure cannot be brought to bear on the banks policy. These regular meetings take place monthly between the governor of the Bank of England and
the Chancellor of the Exchequer, who is a member of the government. In order to consider the level of independence we need
to look at the operation of the Bank in its decision making processes and the interaction with the government. One of the major roles of the bank is the monetary
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