NoNonsense The Money Crisis. Peter Stalker

strategy, most central banks in developed countries operate with a degree of independence. This can be achieved partly through long-term directorships. Although the directors or governors of central banks are political appointees, their terms of office will generally extend beyond the life of most governments. In the US, for example, the seven board members of the Fed are appointed for a term of 14 years, with one member’s term expiring every other year. Nevertheless, the independence of central banks has limits. In practice most governments at times of economic crisis lean on central banks to take politically expedient decisions.

      The Bank of England was nationalized in 1947 and essentially acted as a part of the government. But from 1997 it was granted operational independence, which meant that it was given the overall task of managing interest rates and the money supply. As noted earlier, it has been charged with keeping inflation at around two per cent – but is free to adjust interest rates as it sees fit in order to achieve this. The European Central Bank, which is in charge of monetary policy in those countries using the euro, has a similar target, as does the Bank of Canada. For the Reserve Bank of Australia the target is two to three per cent and for the Reserve Bank of New Zealand it is one to three per cent. In the US the Fed has two targets. The first is concerned with keeping down inflation, the other with maintaining high levels of employment. This is a trickier task since the two targets often conflict.

       Policing the banks