Trust, Accountability, and Central Bank Independence

In a speech delivered at the University of Oxford's Blavatnik School of Government last month, Gabriel Makhlouf, Governor of the Central Bank of Ireland, argued that central bank independence is an institutional tool, not an end in and of itself, and that it derives its value from credibility, accountability, and public trust.

Makhlouf drew on institutional economics to make the case that well-designed institutions shape expectations, discipline behavior, and determine whether commitments are believed. Central bank independence, he argued, is one such institutional foundation, but it is neither self-sustaining nor guaranteed. “There is no natural law of central bank independence,” he said. “Rather it must be explained, understood and earned continuously if it is to be sustained.”

Credibility, Makhlouf argued, is a central bank's “most valuable asset.” It is not generated by distance from political influence alone, he contended. Rather, it depends on competence, engagement, coherence, and trust that decisions will be taken consistently within the institution's mandate and in the long-term interests of the people.

Citing Sir Paul Tucker, past-Deputy Governor at the Bank of England, Makhlouf stated that independence without accountability is fragile, and accountability without independence is ineffective. Trust, he argued, is the mechanism that binds the two together. “That trust is reinforced through engagement, transparency, and accountability,” he said.

Central banks should hold regular reviews of their policies and frameworks to ensure they remain fit for purpose, he argued, even where those frameworks have proved successful. “If we simply focus on preserving institutions,” he said, “we may in fact find that we are weakening them.”

“Independence is a means to a public end; it requires continuous maintenance, analysis, engagement and review,” Makhlouf concluded. “As a central banker let me finish by acknowledging that our legitimacy rests on delivering outcomes for the people we serve and being accountable for the decisions we make.”