Independence is the key principle in ensuring the sound operation of central banks all over the world given their role in achieving price-stability, according to a research paper released on Monday by the International Monetary Fund (IMF).
The IMF said that transparency about banks' multifaceted decisions and actions needs to be strengthened, and clear communication with the public is paramount, which paves the way for accountability.
"Only by simultaneously enhancing central banks’ governance, transparency, and accountability can their long-term independence be assured. This is the surest step to help rebuild public confidence in central banks as reliable defenders of non-inflationary, job-creating economic policies," the IMF said.
The paper said that bridging independence and accountability is the notion of transparency, a vital component allowing independent central banks to prove their effectiveness and public accountability.
Transparency, independence, and accountability are vital components of achieving and strengthen central banks' governance, moreover, they prevent likely institutional downward spirals over the long term. Poor governance and corruption not only harm the economy through short-term disruption, but also take a significant toll on institutions, weakening their effectiveness, thus, central banks are not immune.
The IMF called on governments to reinforce central banks governance through boosting their independence, transparency and accountability.
This call stems from the consequences of the global financial crisis of 2008, when many central banks pursued strategies that led to significant expansions of their balance sheets. In some cases, governments tasked them with new or additional financial stability functions on top of their mandate of price stability.