Stiglitz against central bank independence
MUMBAI: Two times Nobel prize winner Joseph Stiglitz has made a strong case of limiting independence of central banks a few minutes after RBI governor D Subbarao argued for more freedom in his speech introducing the laureate. Stiglitz, however, said that RBI, with limited freedom, has done far better than US Federal Reserve or the European Central Bank which have greater independence.
"Before the crisis, American financial institutions and American regulatory institutions (including the Fed) were often held up as models for others to imitate. The crisis has not only undermined confidence in these institutions, but has also exposed deep institutional flaws. It has shown that one of the central principles advocated by Western central bankers- the desirability of central bank independence-was questionable at best," said Stiglitz who is currently University Professor at Columbia in New York and co-chair of Columbia University's committee on Global Thought.
"In the crisis, countries with less independent central banks-China, India, and Brazil-did far, far better than countries with more independent central banks, Europe and the United States. There is no such thing as truly independent institutions. All public institutions are accountable, and the only question is to whom," said Stiglitz at the C D Deshmukh Memorial Lecture.
Attacking the Fed and the ECB for their bailouts of big institutions, Stiglitz said: "The loans by the Fed and ECB to banks at low interest rates was, in effect, a gift worth tens of billions of dollars, a gift from the public, but which circumvented the usual public appropriations process. It is unconscionable that such power over the purse be given to a non-elected body."
According to Stiglitz, America's central bank was captured by Wall Street. "It came to reflect the ideology and interests of the financial sector, which it was supposed to regulate. The pervasive conflicts of interest- with the New York Fed President being at the center of bailouts of the very banks that had played a role in his appointment-were a model of bad governance. The Fed had allowed the development of a financial structure that was rife with conflicts of interests, and had turned a blind eye to practices that not only exploited the poor, but put into jeopardy the American and global financial system," he said.
"Before the crisis, American financial institutions and American regulatory institutions (including the Fed) were often held up as models for others to imitate. The crisis has not only undermined confidence in these institutions, but has also exposed deep institutional flaws. It has shown that one of the central principles advocated by Western central bankers- the desirability of central bank independence-was questionable at best," said Stiglitz who is currently University Professor at Columbia in New York and co-chair of Columbia University's committee on Global Thought.
"In the crisis, countries with less independent central banks-China, India, and Brazil-did far, far better than countries with more independent central banks, Europe and the United States. There is no such thing as truly independent institutions. All public institutions are accountable, and the only question is to whom," said Stiglitz at the C D Deshmukh Memorial Lecture.
Attacking the Fed and the ECB for their bailouts of big institutions, Stiglitz said: "The loans by the Fed and ECB to banks at low interest rates was, in effect, a gift worth tens of billions of dollars, a gift from the public, but which circumvented the usual public appropriations process. It is unconscionable that such power over the purse be given to a non-elected body."
According to Stiglitz, America's central bank was captured by Wall Street. "It came to reflect the ideology and interests of the financial sector, which it was supposed to regulate. The pervasive conflicts of interest- with the New York Fed President being at the center of bailouts of the very banks that had played a role in his appointment-were a model of bad governance. The Fed had allowed the development of a financial structure that was rife with conflicts of interests, and had turned a blind eye to practices that not only exploited the poor, but put into jeopardy the American and global financial system," he said.
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