How Did Central Bank Independence Become the Norm?

A reforming and self-confident central bank pledges to keep interest rates high to fight inflation, and begins to focus its supervisory attention on troubled commercial banks. There is pushback from politicians against the bankers, criticising them as out-of-touch elites who do not care about growth and jobs, and challenge the central bank’s independence and commitment to helping businesses and citizens. The central bankers and their international allies close ranks, claiming fealty to their professional duties and legal mandate.

If this narrative is familiar in the wake of the squabbles between the finance ministry and Reserve Bank of India over operational independence, it is equally familiar to the National Bank of the Kyrgyz Republic, Hungary’s Magyar Nemzeti Bank, the Central Bank of the Russian Federation, and most other central banks of the post-communist world as they battled to establish legal independence and operational proficiency in the wake of the fall of the Soviet Union. And, as revealed in Priests of Prosperity, Juliet Johnson’s exhaustively researched account of the adoption of politically independent, inflation-targeting central banking in the post-communist world, the outcome of India’s current conflict over the independence of the newly formed Monetary Policy Committee depends on the ongoing success of a central banking model that has been fostered carefully by a particular network of elites: the transnational banking community. Johnson’s chronicle of this virtual community’s purposeful expansion into the post-communist states from the fall of the Berlin Wall to the global financial crisis raises the question of whether this elite community is more akin to the parasitic “Illuminati” of conspiracy theory, or more like an altruistic and disinterested “Jedi,” and in the process delivers an important study of the drivers of institutional change in large state institutions. By empirically documenting the period of the transnational banking community’s greatest seeming triumph to its moment of great crisis, Johnson’s book also delivers a timely study of the possible roots of the populist movements currently shaking polities from the United States (US) to Eastern Europe.