The Study Of European Central Bank Independence And Accountability

Independence and accountability are two sides of the same coin.Independence refers to the freedom from outside control, the absence of influence by others and the capability of thinking and acting for the central bank, while aaccountability aims at verifying the central bank not only to be held responsible for its actions, but also to be required to justify and explain actions and decisions. In the past 10 years, a large number of countries have adopted relatively high levels of independence for their central banks through amending the laws because it is widely believed that independence is a prerequisite for restraining inflation and achieving the price stability. The motivation for granting independence to central banks is to insulate the conduct of monetary policy from political interference, especially interference motivated by the pressures of elections to deliver short-term gains irrespective of long-term costs. The European Central Bank (ECB) established at the end of 20th century has conducted a single monetary policy on behalf of all the countries participating in Monetary Union. The ECB was established with unprecedented institutional, staffing and financial independence, pursuing the sole objective-price stability. In spite of large academic works favouring central bank independence (CBI), some authors argue against it. One of the critiques consists in the potential absence of democratic accountability. Studies show that the ECB has a rather low score in the aspect of accountability. First, there is no effective statutory yardstick to evaluate the performance in achieving its goal in the Treaty. Secondly, the European Parliament could not act as a real parliament to bear final responsibility with respect to monetary policy at present time. Finally there is still a long way to go for the ECB to enhance its transparency, a very important element of accountability. So far most of the academic works related to ECB emphasized on its independence, ignoring its accountability. This paper discusses the theoretical foundations of CBI and demonstrates the need for independence of ECB. This paper also analyses thereason of lacking accountability of ECB and concludes that although a negative .relationship between independence and accountability exists, it does not significant, which means that a central bank can be both independent and accountable.This paper is divided into five parts. After the introduction, the second chapter presents the theoretical foundation of central bank independence and concludes that it's necessary to entrust the monetary policy decision-making to an independent central bank. The third chapter discusses the ECB high levels of independence set by the Community law. In the fourth chapter, we introduce three main features of central bank accountability and present empirical results that there is no trade-off relationship between independence and accountability. We also discuss the reasons of low accountability of ECB and the ways to improve. Finally, in the conclusion, some ways to enhance the independence and accountability of China central bank are offered.