“Discuss the advantages and disadvantages of an independent central bank”

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"Discuss the advantages and disadvantages of an independent central bank"

The case for the independent central bank is becoming increasingly accepted. When the first central banks were set up, their main objectives were to print money, and to ensure that this money was delivered to their appropriate destinations. Now however, the duties of the central bank have changed. Central banks are now subject to a much wider economic usage, amongst other policy objectives central banks are used for the reduction of inflation, and unemployment, as well as stabilizing the economic system.

To understand the disadvantages and advantages of an independent central bank, we must first look at the motivations of the central bank. The theory of bureaucratic behavior suggests that the central banks acts in order to maxamise its own welfare, just as a consumer seeks to maxamise utility. Central banks welfare arises from its "power and prestige" (Mishkin). Thus we must remember, that according to this theory, when looking at the actions of the central bank, that it is acting in order to maintain and increase its power and prestige.

Being independent of Government control poses a number of issues for economic debate. By being given freedom