Three to four decades ago, it was commonplace to speak about the marked difference between Great Britain, which had a deeply entrenched fear of unemployment, and Germany, which had a deeply entrenched fear of inflation, and the effect of those contrasting national attitudes on public policy. Since those days, with the independent Bundesbank playing a powerful role, Germany has greatly strengthened its reputation for resisting inflation and safeguarding the currency. Meanwhile the United Kingdom, for better or for worse, has grown accustomed to levels of unemployment far in excess of what the nation would have thought desirable or even tolerable in those earlier periods and, like many other nations, is now considering fundamental moves toward central bank independence in the hope of capturing the benefits of price stability for its economy.
Indeed, a wave of change toward greater independence for central banks is sweeping across the globe. In Europe, central bank independence has become a prerequisite for participating in the final stages of monetary union; major structural changes for independence are in place or have been proposed in Belgium, Italy, France and Spain. With its reorientation toward open economies and market-based policies that has followed the debt crisis, Latin America has seen major moves toward greater central bank authority or independence in Chile, Venezuela and Mexico, and the process has begun in Argentina. The transitional economies of Eastern Europe are experimenting with alternative approaches. New Zealand has introduced an imaginative scheme for targeting inflation. South Africa has fortified the powers of its central bank. China is drafting comprehensive bank legislation. The list goes on.
Against this background, to read a detailed account of the activities and inner workings of Germany’s Bundesbank, whose name has long been synonymous with central bank independence and the fight for sound money, is especially timely. In The Most Powerful Bank, David Marsh has written a readable, comprehensive and extremely engaging account of the activities of the Bundesbank and the policy debates surrounding it. As European
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