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Central Bank Independence

Financial glossary · plain-language definition · Bonds Credit Macro

The principle that the institution controlling a nation's money supply and interest rates should be insulated from short-term political pressure. Politicians almost always prefer cheap money (low rates) in the near term, but a central bank forced to keep government borrowing cheap cannot credibly fight inflation. Independence makes the inflation-fighting promise believable. The U.S. Federal Reserve won effective independence in the Treasury-Fed Accord of 1951. Independence is about tools, not goals — central banks still answer to legislatures for their mandate.

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