The current battle over the liberal world order seems to be about trade, climate, and security policy. But monetary policy has also become an increasingly important arena of conflict. Populist leaders seem to love nothing more than denouncing central bankers and challenging the legitimacy of the current monetary order, as Donald Trump famously did during the U.S. presidential election campaign when he accused central bankers of “doing political things” by keeping interest rates low.
In responding to this challenge, it is tempting to point to central banks’ independence from politics as a defense against the dangers posed by erratic leaders. Yet that would be a risky move. It turns out that decades of appeals to technocratic exceptionalism—the idea that monetary policy should be shielded from democratic oversight—have had costs. Indeed, this exceptionalism can lead to the very politicization of monetary policy that it seeks to avoid.
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