One of the enormous contributions of the Monetary Policy Committee is simply to make interest rate decisions a systematic process reflecting the needs of the economy. Over 25 years, the MPC has, I think, proved a great success in institutional reform. Inflation averaged close to the 2% target, at least until 2021. People accepted that this was a good way of making technocratic judgements to meet a target set by Parliament. This chapter offers five lessons for the continuing conduct of monetary policy. Inflation targeting is a way of living not a theory of the monetary transmission mechanism; money matters; set policy in the world not in a model; abandon point forecasts and finally understand the real equilibrium or disequilibrium of the economy

This chapter compares the decision-making process of the Bank of England to that of the European Central Bank and the Federal Reserve. The move towards making monetary policy decisions via committees coincided with the shift to central bank independence. This was a natural consequence of central banks no longer taking orders from their governments but being given the operational independence. Members of committees then needed to pool the information that would help them make good decisions in uncertain circumstances – a necessary step when performing complex tasks like monetary policy. The move towards central bank independence was crucial to ensure politically independent and goal-oriented conduct of monetary policy. The more long-term orientation and objectivity of monetary policy’s goals – contrasting with the shorter-term nature of political cycles and political bias to inflate the economy – proved beneficial to price stability, with more credible signals helping to manage inflation expectations

This paper analyses and discusses how the Bank operated and performed as an independent central bank. It combines a critical evaluation with useful lessons from an international perspective. The Bank’s performance is compared with some of its peers, including the US Federal Reserve, the European Central Bank and fellow inflation targeters

This chapter provides an overview and a summary of the following chapters.

This chapter first provides a brief review of the first remit given to the MPC in 1997 and why it would come to play such a key role in defining the monetary policy framework in the early years of the MPC.There is also a discussion of why the same concept has worked less well in other contexts, drawing on the UK’s attempts to introduce a remit for the IMF and pointing out the absence of a financial stability remit to match that for monetary policy.

This chapter is about the communication of monetary policy, and specifically the role of “forward guidance”. This is taken to mean statements by monetary authorities about future policy.

This chapter sets out a dozen propositions aimed at underpinning and, perhaps, revitalising Britain’s Monetary Policy Committee and the regime entrusted to it. It has not addressed the many reform proposals - such as merging the MPC and Financial Policy Committee, or having regional representatives on the MPC. Nor has it addressed the incentives of the regime’s parliamentary and other overseers.

This chapter addresses the tensions between the high level of independence granted to the European Central Bank (ECB) under the Treaties and its accountability. In a first step, it sets out the legal framework of monetary policy within the system of the European System of Central Banks and explains in more detail the quantitative easing programmes of the ECB. It goes on to provide a summary of the back-and-forth litigation on the scope of monetary policy between the Court of Justice and the Bundesverfassungsgericht in Gauweiler and Weiss. Next, the chapter focuses on the judicial review of the monetary policy decisions by the Court of Justice and the national courts. Both these sections follow the same structure: first, they analyse access to courts and remedies; and second, they show how the courts under analysis approached the principles of equality and solidarity, for the purposes of achieving the common interest. The chapter closes with an examination of judicial interactions between EU and national courts and the role these play in the legal accountability of the ECB.

The Conclusion of the book joins the theoretical propositions from Chapters 1 and 2 with the empirical findings from the case studies carried out in Chapters 3–5. It is here that an assessment is made of how legal accountability has so far been able to ensure that decision-makers in the EMU are held to account by politically equal citizens. In addition, the Conclusion imagines how judicial review should look like according to the normative proposal from Chapter 2. As a final message, the Conclusion underlines the limits of judicial review in respect of democratic deliberation and participation that is to shape and sustain the common interest.

This chapter is an overview of central banking developments between 1919 and 1939, highlighting the establishment and operation of 28 new central banks, most in what are now called emerging markets and developing countries. Inspired by expert advice and underpinned by foreign lending, the new banks were designed to function independently from political interference, and to defend the gold standard as part an international, rules-based network of cooperating institutions. The Great Depression revealed the flaws in this setup. As capital flows dried up and international cooperation faltered, the gold standard disintegrated, and central banks were unable to head off macroeconomic and financial collapse. Designed to fight inflation, they were ill-prepared to address financial fragility. In the wake of their failure, a two-pronged reaction set in. Central bank autonomy was curtailed, while monetary policy was subordinated to new policy objectives, including the support of import substitution in Latin America and central planning in Eastern Europe. At the same time, central banks’ powers expanded, as they were transformed into agents of state-led development policy. Thus, the new central banks of the 1920s and 1930s were integrally involved not just in post-First World War reconstruction and the Great Depression, but also in the key economic developments of the mid-20th century.

The Bulgarian National Bank (BNB) was restructured repeatedly between 1926 and 1935, but these restructurings were superficial and incoherent, producing contradictory outcomes. The liberal spirit of the initial 1926-8 reforms dissolved with the onset of the Great Depression. Subsequently, the BNB was endowed with new instruments and tasked with carrying out the interventionist policies adopted in the 1930s, thus paving the way for the bank’s eventual role in the communist planned economy. This chapter focuses on the significance of BNB’s state ownership and on the tight economic conditionality attached to 1926 and 1928 loans sponsored by the League of Nations. By contrasting policies followed in Bulgaria and Greece during the Depression, it challenges Eichengreen’s hypothesis that heavy defaulters and countries leaving the gold exchange standard performed better relative to those that sought to maintain their reputations as decent debtors.

The ECB’s selective bond purchases raised constitutional controversies from the start. The SMP was criticised for overstepping the lines of EU monetary policy and basically financing Member States. The OMT was an effective lender of last resort for governments, although never operationalised. The purchases also gave rise to the first substantive CJEU judgment on monetary policy. The chapter combines economic and legal research to get to the heart of the problems. Specific questions relate to the role of government bonds in the transmission of monetary policy, and to the risks of contagion and currency redenomination as justifiable reasons to selective bond purchases. The broader constitutional assessment of the ECB selective purchases finds many critical areas for the EMU constitutional architecture. Some solutions such as the CJEU's excessive reliance on the objectives of measures for defining them as common monetary policy or Member States economic policy left room for criticism. The chapter argues that the principle of conferral risks becoming void if the independent ECB can effectively dictate its own mandate, calling for a more economic definition of monetary policy. In addition, the circumstances around the programmes raised questions concerning the independence of the ECB.

Monetary policy in Korea is implemented by, and is the responsibility of, the Bank of Korea. More precisely, it is the Monetary Policy Board (MPB), an autonomous administrative agency modelled after the Board of Governors of the Federal Reserve System in the United States, which determines monetary policy through collective decisions. This monetary policy system was only established when the Bank of Korea became independent in 1998. This chapter looks at the history, organisation and decision-making structure of the BoK and its relationship with the Korean government.

In Chapter 9, the concluding chapter, I discuss the prospects of RMB internationalization. There are plenty of reasons to be pessimistic. First, the population is ageing, and the labor force has already begun to shrink in 2012. This hurts the economic size effect. Second, China is too wary of the risks of free capital mobility to relinquish capital controls in the onshore market any time soon. Third, the development of a deep, broad, and liquid financial market in the onshore market will probably take a long time. Fourth, in order to be a “safe-haven currency,” China must have an independent judiciary, an independent central bank, democracy, and freedom, which China still lacks. There are, however, reasons for cautious optimism as well. First, despite possible slowdown in the growth rate, China’s economy is likely going to become the largest economy before long. Second, China has a strong desire to internationalize its currency. Third, as the US share of the world’s GDP is set to fall continuously, the United States would eventually not be able to supply the assets for reserves and payments needed by the world. Some other currency(ies) is needed to fill the gap, and the RMB is a strong candidate.

This chapter discusses the currency union’s original set-up. It first discusses the history of European monetary integration, distinguishing between two sorts of motives: one economic, the other political. From the establishment of the European Economic Community up until the Treaty of Maastricht, both have been important drivers of monetary integration. The chapter subsequently turns to the original legal set-up of the euro, in particular its internal policy dimension. The economic and political forces behind the currency union’s creation also exercised great influence on its set-up, which came to institutionalise a stability paradigm. Characteristic of this paradigm was that it granted overriding importance to price stability as a policy goal and argued for a privileged position of the central bank in achieving this. The chapter shows how its influence was most notably evident at the level of aims and principles and in the constitutional position of the European Central Bank. Yet it also shaped the single currency’s economic foundations, in particular, the Union’s limited competences in this area and its focus on fiscal prudence. It even informed the rules governing accession.

This introductory chapter outlines the transformation or modernization of the Bank of England in the twenty years after 1979: how governance and accountability were transformed, and communication was accorded a greater role, as the Bank moved to policy autonomy or operational independence from the UK government. The process amounted to what might be described as an informational revolution. The transformation of macro-economic management may also be considered as part of a broader process of globalization. Central banks everywhere became much more aware of international activities and developments, and policy-makers reflected more on how the UK was affected by what went on beyond its frontiers. There was also a greater legalization: a need for legislation to define what was involved in banking, and how to regulate banking. Finally, the nature and definition of money and of monetary stability became the subject of a political debate.