Bank of England Governor Andrew Bailey has warned that the rise of populist politics poses a significant threat to the independence of central banks globally, potentially undermining their ability to protect the long-term interests of the economy.
In a speech delivered in London, Bailey stated that populist parties are increasingly attempting to exert influence over monetary authorities worldwide, a move he believes would "damage the public interest." He explained that institutions like courts, universities, regulatory bodies, and central banks derive their authority from democratic delegation and rely on public trust to function effectively.
Bailey's remarks come amid a backdrop of high-profile attacks on central banks. He specifically referenced the criticisms leveled by US President Donald Trump against former Federal Reserve Chair Jay Powell, which included calls for lower interest rates and culminated in a now-dropped Department of Justice investigation into Powell. Many, including former Federal Reserve chairs, condemned the probe as an effort to undermine Powell's authority.
Additionally, Bailey pointed to actions taken by leaders in Turkey, where President Recep Tayyip Erdogan has replaced central bank governors who opposed lowering interest rates, as well as similar measures in Hungary and India.
Bailey argued that efforts to bring central banks under government control tend to backfire, leading to short-term monetary policies that ultimately undermine economic stability and make it difficult to control the value of money. He emphasized that the value of money is crucial for households and businesses, and maintaining trust in public goods like monetary stability requires broad societal support.
