The idea that central banks should enjoy some independence from politicians is as old as central banking itself. Napoleon Bonaparte mused in 1806 of the recently created Bank of France: "I want [it] to be sufficiently in the hands of the government, but not too much."
The modern version of central-bank independence emerged after the second world war. The "Treasury-Fed accord" of 1951 liberated America's central bank from having to keep down the government's borrowing costs, as it had done during the war. In Germany, the Bundesbank was granted latitude to keep inflation at bay and avoid a repeat of the Weimar currency debasement in the 1920s. Its comparative success during the 1970s made it a model for the rest of the continent.
The movement gained traction in the 1980s as theoretical and empirical research built the case. Politicians, the argument goes, are tempted by self-defeating monetary policies in pursuit of high employment, inflating away debts and election victories. Goals such as full employment and low borrowing costs are easier to reach if policy is delegated to a conservative central banker, perhaps even a price-obsessed "inflation nutter". As independence rose, inflation fell. Economists celebrated a "great moderation" in which recessions became rarer.
Aping the rich world's independent central banks has also transformed emerging markets. In the 1990s the gap between annual inflation in the median poor and rich economy was 6.2 percentage points. In the 2020s it has been 1.4 points.
Many rich-world governments have become so indebted, and so used to running deficits, that the effect of monetary policy on their budgets has become enormous. If they roll back central-bank independence, it will struggle to survive in emerging markets, where it is not as deeply rooted.
Donald Trump has spent much of his second term bullying the Federal Reserve to cut interest rates faster. On January 11th 2026 Jerome Powell, the Fed's chair, revealed that the Department of Justice had served the central bank with subpoenas relating to a probe into the cost of renovating the Fed's headquarters. Mr Powell said he was now under threat of a criminal indictment. He declared with uncharacteristic ardour that the probe was the result of the bank setting policy based on sound economics "rather than following the preferences of the president."
The pushback was remarkable. Mr Trump disavowed involvement. Republican senators on the banking committee, including Thom Tillis, said they would block Fed nominations until the matter was resolved. Former treasury secretaries and Fed chairs of both parties signed an open letter defending the Fed. A dozen foreign central bankers, including Christine Lagarde and Andrew Bailey, signed another. Jamie Dimon, boss of JPMorgan Chase, said anything that chips away at Fed independence "is probably not a great idea." Markets barely moved: yields on long-dated Treasuries, which would soar if Fed independence were truly jeopardised, hardly budged.
Mr Trump will name a replacement for Mr Powell when his term as chairman ends in May 2026. One of the favourites is Kevin Hassett, who has serious economic credentials but is a paid-up member of team Trump.
Takaichi Sanae, Japan's prime minister since October 2025, previously decried interest-rate rises as "stupid". Despite the Bank of Japan's formal independence, what the government makes of monetary policy matters. In the 2010s Abe Shinzo ended stubborn deflation through an accord with the bank, which hugely expanded its unconventional monetary stimulus. Today Japan faces the opposite problem: in December 2025 inflation worries led the central bank to raise rates to a 30-year high. Japan's net debt stands at 130% of GDP, so further increases in interest rates will rapidly squeeze the government's budget.
Both the populist-right Reform UK and the populist-left Greens object to the government's high interest bill. Because the Bank of England bought large quantities of bonds during the global financial crisis, a big chunk of the interest bill now runs through its balance-sheet. Both Reform and the Greens have suggested scrapping interest on reserves—which would amount to a tax on lenders and could turn the central bank into a cash machine for the government. Reform says "everything should be up for debate" when it comes to the central bank, including government oversight of interest-rate decisions.
Independence of the European Central Bank is guaranteed by treaty, making it better insulated from politics than any other major central bank. But the euro zone's overall debts, at 88% of GDP, are forecast to rise as governments spend on defence and ageing societies while fending off populists. The most troubled large economy is now France, with debts of over 115% of GDP and an annual deficit of 5% of GDP. Jordan Bardella, a presidential favourite from the hard-right National Rally, told The Economist: "We won't be able to avoid a discussion with the [ECB] about French debt."
The main recent case of backsliding has been Indonesia. In September 2025 the Bank of Indonesia announced it had agreed to "share the burden" of funding the government's pet projects, by increasing the interest it pays on the deposits of the finance ministry. The bank has been buying government bonds afresh and owns about a quarter of the rupiah-denominated stock. In unreformed countries such as Ghana, Turkey and Nigeria, central bankers have faced prosecution or other legal trouble in recent years.
One argument against the necessity of independent central banks is that inflation angers voters like little else. Jimmy Carter paid the price for it in 1980, as did Kamala Harris in 2024. In Japan, looser monetary policy would weaken the yen, which is unpopular with a public fed up with expensive imports. But relying on politicians' restraint is a gamble; independent central banks, which have proved themselves up to the job time and again, remain the safer bet.
Compliment, n.: When you say something to another which everyone knows isn't true.