Balancing Monetary and Fiscal Policy Objectives: Central Bank Independence During the Global Pandemic

Abstract

The use of unconventional monetary tools, and particularly the resort by central banks to asset purchase programs instigated as a means of addressing prolonged periods of low inflation, has not only heralded times during which new and innovative approaches to regulation can be expected, but also highlights the significance of a growing acknowledgement that changes in financial instruments, payment systems and trading platforms are significantly altering the financial landscape and also the need for monetary policies to adopt more accommodative approaches to regulation traditional tools and inflation targeting mechanisms are not as relevant as they used to be - particularly against the backdrop of the impact of crypto currencies and the need to ensure that financial stability can be guaranteed where such assets, which have great potential to trigger systemically relevant risks, and more specifically, stable coins which are backed by a basket of commodities or government bonds, are in operation. As well as highlighting why unconventional and conventional accommodative monetary policies have been propagated as being crucial to achieving dual mandates and goals of leading central bank economies, drawing from lessons and experiences whereby accommodative monetary policies have been instigated as a means of addressing prolonged periods of low inflation, this paper highlights how such experiences can also be used to bolster the proposition that since monetary policy space is limited, and many of the challenges faced are beyond mandates of central banks, these should be addressed through structural and fiscal policies.