Independent and Accountable Central Banks and the European Central Bank

Abstract

This paper begins with the concept of central bank independence and focuses its argument around one of its major drawbacks - the potential absence of accountability by the monetary authority. Then, beyond defining an alternative legal central bank independence index, we analyse the current Statutes of thirty-two central banks, and we quantify their legal independence and accountability degrees. With that data, we confirm previous studies, showing evidence of a de jure negative relationship between central bank independence and democratic accountability, though not as strong as it is usually argued. Still, we remain aware that some very independent central banks are also very low accountable - the European Central Bank (ECB) is a good example. Finally, we discuss the advantages and disadvantages of a contract a la Walsh between the ECB and a European Community organ, and we ask for a more in-depth analysis and understanding of these subjects, in order to improve the EMU institutional picture.