20 March, 2026
Its Independence Protects Your Money from Your Politicians
Executive summary
National Security Strategies cite the protection of vital national interests (VNIs) as one of their goals. VNIs include e.g., the rule of law, capacity to create capital, and independence of a central bank. A nation’s central bank, e.g., the Bank of Canada, Bank of England and U.S. Federal Reserve, may not be as visible to the public eye as the many commercial banks, but the central bank’s monetary policy impacts the cost of everything each public consumer, business and government buys. Monetary policy sets the nation’s interest rates and influences its rate of employment, i.e., impacts the cost to borrow money, the return on money invested and whether citizens have jobs.
A central bank determines the public’s economic security. If its goal is to make life financially secure, it must remain independent of political influence. Independence is clearly a ‘vital national interest’ given the brutal fight currently between U.S. bankers, politicians and the judiciary as narrated below.
In 2018, the President of the United States (POTUS) and his administration began to threaten Jerome Powell, the Chairman of the U.S. Federal Reserve System (the U.S. central bank), stating if Powell did not lower interest rates, POTUS would fire Powell. Powell resisted, maintained the bank’s interest rate policy, its independence and his appointment. On 21 January 2026, in anticipation of POTUS’ attempting to fire Powell, the U.S. Supreme Court reiterated its 22 May 2025 Order (Trump v Wilcox) that POTUS cannot fire the central bank’s Chairman, as the bank has a "distinct historical tradition" as a quasi-private entity, hence making it legally distinct from other independent agencies whose leaders POTUS actually did fire.
On 11 January 2026, POTUS commenced criminal proceedings against Powell for ‘misspending’ government funds on renovations of the central bank’s headquarters. On 13 March 2026, a federal judge blocked subpoenas in these proceedings labelling them politically motivated. The Department of Justice (DOJ) will appeal the decision. Powell holds office until the end of his term in May 2026, or until his successor is confirmed.
In August 2025, POTUS stated he would nominate Stephen Miran to fill a vacancy at the bank while Miran concurrently remained on the U.S. Administration’s Council of Economic Advisors (CEA). This duality thus weakens the bank’s independence from the U.S. Executive. Miran championed presidential control of the bank and nationalizing the 12 regional banks. He resigned from the CEA February 2026 but remains at the bank.
On 04 February 2026, POTUS stated he would not have nominated Kevin Warsh as Federal Reserve Chairman if Warsh had expressed an interest in raising interest rates. POTUS wants lower interest regardless of economic conditions and a chairman who agrees to do so. His nomination requires the U.S. Senate Banking Committee’s approval. Some Committee members threaten to stall the nomination until the investigation of Powell’s misspending is terminated. The DOJ’s intent to appeal the 13 March 2026 block indicates POTUS’ political agenda to override the bank’s independence takes priority.
This note summarizes reasons why independence is a vital national interest; §1, independence denies politicians control of interest rates; §2, it maintains the bank’s perceived credibility in the minds of the nation’s public as an institution that will effectively control inflation and employment, thus satisfying the public’s expectations; §3 it enables mitigating impacts from the government’s ‘fiscal policy’ which prescribes spending programs to achieve socio-political goals and from the government’s issuing bonds to borrow money to fund these programs; §4, it ensures unelected technical expertise is balanced with accountability to the public. Conclusions follow at §5.
1. Independence denies control of interest rates by politicians
A nations’ independent central bank is a separate and distinct entity from the government. Central banks set monetary policy, whereas governments set fiscal policy. Monetary policy manages a state’s money supply, liquidity, and interest rates to achieve economic goals, e.g., stable prices, low inflation, high employment and conservatively steady economic growth. Monetary policy impacts borrowing, spending, and investing. Protecting monetary policy from political control is a principle foundational to economic stability. Central bankers and politician exercise different capabilities (§1.1) and operate with different instruments along different time horizons (§1.2).
President Recep Tayyip Erdoğan directed the Central Bank of the Republic of Turkey to lower interest rates despite soaring inflation (2018-2023), arguing high interest rates cause inflation. He fired central bank governors who refused.
Prime Minister Viktor Orbán appoints close political allies to Hungary’s Monetary Council directing the Hungarian National Bank to track Orban’s political agenda, leading to 15% inflation 2022-2023, the highest in the EU.
New Zealand’s inflation peaked in the high teens (1970-190) as governments used the central bank to stimulate the economy for political gain. In 1989, the government passed the Reserve Bank of New Zealand Act granting the bank independence.
1.1 Different capabilities
Elected politicians, e.g., lawyers, business people and media personalities, are skilled in identifying socio-politico preferences of electorates and designing suitable policy.
Qualified economists lead central banks and exercise exclusive power over interest rates and money supply. As unelected technocrats, central bankers make decisions which may not be popular with electorates, e.g., raising interest rates to moderate an overheated economy. Exclusive concentration of such power appears undemocratic. However, economic theory and historical practice show central bank independence enables mitigation of economic risks in policies set by politicians
1.2 Achieving the same goals but with different instruments along different time horizons
Economic growth and increasing employment are goals common to central banks and governments. Governments may wish to stimulate the economy with low interest rates and increased money supply to achieve these goals. However, these means are exclusive to the central bank.
Further, the timing inherent in government policy does not converge with that in monetary policy. Politicians are opportunists operating on shorter-term time horizons framed by the next election. Politicians’ goals also include shorter-term socio-political and welfare benefits but at the cost of longer-term inflation and unemployment. Once the public adjusts its expectations to higher prices, initial increases in employment may vanish and leave the economy with the same structural problems that existed before the election but with higher inflation.
Central banks operate on long-term perspectives using economic-focused evidence-based research. Business cycles are impacted by domestic and international economic forces which do not necessarily correlate with political cycles.
2. Independence maintains credibility with the public’s expectations about future inflation
Inflation is a psychological phenomenon as much as a real economic occurrence. If the public believes in its mind the political powers in government will devalue the currency in the future to pay off its debts or to win votes, businesses will raise prices, and the public will demand higher wages in anticipation. This creates a self-fulfilling prophecy of rising inflation.
If a central bank is independent and sets its inflation target of e.g., 2%-2.5%, it builds credibility with businesses and consumers. Financial markets will trust that the bank will prioritize price stability over political expediency. This trust solidifies expectations of future inflation. When such expectations are instilled in the public, the central bank can manage unexpected economic shocks more effectively, such as the sharp rise in oil prices in March 2026 arising from the US / Israeli-Iran War. The public will believe that inflation will remain low in the long-run, and the bank will not have to raise rates as aggressively to fight temporary price spikes.
3. Independence ensures monetary policy avoids fiscal dominance
The bank’s Independence enables separation of monetary policy from fiscal policy. Governments often run deficits that require the issuance of government bonds. If a central bank is controlled by the government, the bank may be pressured to keep policy interest rates artificially low or increase the money supply to reduce the government's borrowing costs. Such dominance of fiscal authority over monetary policy can lead to hyper inflation.
The integration of a central bank with fiscal authority led to annual hyper inflation in President Friedrich Ebert’s Weimar Republic of 354,300% in 1923, President Robert Mugabe’s Zimbabwe of 89.7 sextillion % in 2008 and President Nicolás Maduro’s Venezuela of 53.8 M % in 2018. Argentina’s political leadership routinely interferes in its central bank operations to finance budget deficits, a case of regrettable ‘fiscal dominance.’ Their currencies are worthless. Independent central banks will not support undisciplined fiscal spending.
4. Independence enables technical expertise and requires accountability
Monetary policy is a technical field of data analysis, forecasting, and econometric modelling. Measuring and reporting economic indicators, e.g., GDP growth, unemployment, and Consumer Price Indices will necessarily lag the real time event. Acting on such information requires long-term perspectives and specialist skills. Lawmakers and administrations rely on ideology and platforms to represent the public interest, but these means lack the fact-based discipline in monetary policy.
Independence does not mean lack of accountability to the public. Central banks are described as being ‘independent within the government, but not independent of the government.’ In coherently- led democratic nations, the government gives the bank a broad mandate such as ‘price stability and optimum employment.’ Central bank leadership testifies before lawmakers and report frequently to the public on monetary policy issues and decisions. Leadership is appointed by lawmakers.
5. Conclusion
The main arguments supporting the independence of a central bank are twofold:
- Select the most technically proficient, best trained and competent people to run an extremely technical and complex operations – “a merit-based best person for the job” argument. Leave banking to bankers and politics to politicians.
- Never forget the unmitigated financial disasters and immeasurable pain and suffering that nations’ publics have been forced to endure through no fault of their own but only due to the wilful ignorance of narcissistic politicians who ignore the first argument. "History repeats itself, first as tragedy, second as farce" (Marx).
© 2026 Lawrence Joseph Howard