Under the aegis of central banks: Capital mobility, partisan politics and central bank reform in Britain and France

This dissertation examines the move to statutory central bank autonomy in France and Britain. It seeks to explain why these countries abruptly instituted historic revisions of their central bank statutes. These reforms were unexpected, given the sensitivity of employment and GDP to monetary policy. Deeply entrenched traditions of central bank dependence in France and Britain make these statutory reforms worthy of in-depth study. Although central bank autonomy became contentious in French and British policy-making circles in the late 1980s, a revision of the statutes was unanticipated in both countries until the reforms were formally underway in 1994 and 1998 respectively.; Government ambitions to maintain the credibility of monetary policy in an era of high capital mobility provide a convincing, but all too simple and mechanical, explanation for grants of central bank autonomy. Policy failures, perceived credibility problems and electoral competition in Britain and France were crucial incentives for elected officials in their decision to confer autonomy on their central banks. Price stability did not necessarily require central bank autonomy, but the devolution of monetary policy authority to central bankers promised to serve governments well by shielding them from the political consequences of future policy failures. Domestic politics and institutions, mere intervening variables in the eyes of students of systemic forces, determined the type of autonomy that prevailed. In fact, variations in central bank autonomy were quite pronounced across both of the cases. The relationship between the executive branch of government and its bureaucracy provides an important clue to explain the type of autonomy that central banks eventually gained. The dissertation explores this issue and extends its general examination to Japan and New Zealand, two logical cases for probing the essential plausibility of the analysis. It concludes that governments steeped in traditions of ministerial responsibility, and that place a high value on executive control over the bureaucracy, tend to include high levels of transparency and accountability in central bank reforms. Conversely, weak transparency and accountability provisions in such reforms seem to prevail in countries with powerful bureaucracies and relatively weak legislatures.