The political economy of central bank independence
It is an empirical matter whether investors repose confidence in the central bank or in the country’s government. But what should they do when moves like demonetisation become part of economic policy?
Economic affairs secretary Subhash Chandra Garg’s tweet in reply to RBI deputy governor Viral Acharya’s hard-hitting speech was widely deplored, but he did have a valid question. To what extent are investors really bothered about central bank independence? If they are, what explains the flood of money that entered China, where the central bank doesn’t even pretend to be independent?