Central Bank Independence Is Over: Riles on the Technocracy Myth

Book: Financial Citizenship: Experts, Publics, and the Politics of Central Banking
Author: Annelise Riles
ISBN: 9781501732737

Previous: The Legitimacy Crisis in Central Banking

Chapter 2 takes the most sacred idea in modern central banking and pokes holes in it. Central bank independence. The whole “keep politics out of money” doctrine.

Riles does not say independence is worthless. She says the story we tell about it does not match reality. And that mismatch is fueling the legitimacy crisis.

The independence doctrine in 30 seconds

For roughly thirty years, developed-world central banks set monetary policy with minimal direct political interference. The logic:

• Politicians face short election cycles and want easy money now
• Central bankers need long horizons to fight inflation
• Monetary policy is more science than politics
• Insulate the experts, everyone wins

Adam Posen put it bluntly at a Cornell lecture: in many ways it “sounded like a right wing coup” dressed up as Pareto optimization. Democracy’s inflationary excess had to be checked by patient technocrats.

A famous 1993 Alesina and Summers paper linked independent central banks to lower inflation across countries. That correlation became gospel.

But the evidence is shakier than advertised

Riles walks through the pushback:

• Posen’s own research suggests causation may run the other way. Low inflation cultures create independence, not the reverse.
• In today’s deflationary developed economies, fighting inflation is a weak rationale for autonomy.
• Central banks do far more than inflation targeting: regulation, asset purchases, financial stability, international coordination.
• Mandates are national. Markets are global. Domestic priorities can hurt people in other countries who had no say.

Even independence’s strongest defenders admit you cannot square expert rule with democratic self-governance without some trade-off. The public gives up control to get expert management. Communication and transparency are supposed to make that deal feel fair.

The crisis exposed the lie

2008 broke the clean independence narrative. In the US, the Fed and Treasury coordinated tightly. The united front was effective. It also shattered the image of a central bank standing apart from government.

Paul Tucker, former Bank of England deputy governor, makes a key point: “peacetime” and “wartime” central banking are hard to separate. Crisis actions shape ordinary policy and vice versa.

When the public discovers central bankers were always entangled with politics, they feel betrayed. Politicians exploit the gap. Central bankers feel like failures. Everyone loses.

Japan: Abenomics as political theater

Shinzo Abe’s 2012 campaign promised to bend the Bank of Japan to political will. Central bankers worldwide were horrified.

Five years later, the economics mostly flopped. Inflation targets missed. Rates barely moved.

But the politics worked. Abe won repeated landslides. For many Japanese voters exhausted by decades of stagnation and Fukushima trauma, something was finally happening. Hope returned, even if the numbers did not.

Riles’s uncomfortable point: Abenomics gave cover to nationalist policies many Japanese found distasteful, from textbook revisions to press restrictions. Central bank action had cultural and political side effects far beyond GDP.

America: Audit the Fed and Trump

The 2016 US election put central banking on the campaign trail.

Audit the Fed (Rand Paul, Cruz, Rubio, and Sanders) aimed to open Fed deliberations to congressional review. Libertarians framed it as liberty, not economics. Sanders said the Fed was “hijacked by the very bankers it regulates,” pointing to Goldman Sachs board members on regional Fed boards.

Fed defenders mostly dodged the cultural critique. Janet Yellen said the bill would politicize monetary policy. Ben Bernanke stressed the technical nature of the work.

Larry Summers was more interesting. He agreed Sanders had a point about financial sector capture. Then he argued Congress itself was too dysfunctional to oversee the Fed well, and that industry expertise at the Fed had benefits alongside capture risks.

Trump went cruder. He accused Yellen of keeping rates low to help Obama and Clinton. Yellen denied politics played any role. Clinton played the expert card: words move markets, do not malign the Fed.

Congressman Scott Garrett had the sharpest line: “Whether you like it or not, the public increasingly believes that Fed independence is nothing more than a myth.”

From independence to interdependence

Riles’s proposed reframe: central banks are not independent. They are interdependent actors woven into government, markets, and public life.

Legitimacy should come from productive collaboration, not autonomy for its own sake. Legal independence on paper does not predict real autonomy. Informal networks, personnel flows between government and central banks, and cultural ties to finance matter more.

Independence from government was always only half the story. Central banks are not independent from financial markets either. Their authority depends on market support.

My take

This chapter is where the book gets politically uncomfortable in a useful way.

The Audit the Fed debate is a good example of how left and right can share a cultural critique while disagreeing on fixes. Riles does not pick a winner. She says the debate itself proves the old technocracy frame is dead.

Abenomics is the case I keep thinking about. We judge monetary policy on inflation and growth. Voters sometimes judge it on whether it makes them feel like their country has a future. Those are not the same thing.

The shift from independence to interdependence sounds soft until you sit with it. It means central bankers cannot hide behind “we’re just doing science.” It also means the public cannot pretend monetary policy is someone else’s problem.

What comes next

Chapter 2 ends by pointing to culture. If independence rationales are weak economically, maybe they tell us more about central bankers’ cultural world than about economics. Chapter 3 goes inside that world.

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