Why is it important to separate central bank and the goverment?
In my country, the central bank has been separated from the executive branch of government. The central bank governor used to be a public post in the cabinet. Now, the president elect candidates for board of governors to be elected by the house. The elected board then works along side the house and the cabinet to maintain and execute monetary policy.
Why is this the ‘better’ way (according to some economist)?
Why is this NOT the ‘better way (according to some others)?
PS: I’m not an econ student so easy on the jargon pls.
In the short term the government may be tempted to print money to increase the economic growth of the country, thus decreasing unemployment, while the costs, in terms of higher inflation, are paid over the medium to longer term. In fact, there is strong empirical evidence that the independence of the central bank results in lower inflation, which in turn ensures a more stable environment for economic employment growth.
What is a Central Bank
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