Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Political independence of FED - Essay Example

Comments (0) Cite this document
It is apparent that financial sector plays a critical role in regulating financial matters in a country, particularly the Central Bank. However, political interference has been blamed for continued interference with how the financial regulators operate. …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.7% of users find it useful
Political independence of FED
Read TextPreview

Extract of sample "Political independence of FED"

Political independence of FED Political independence of FED It is apparent that financial sector plays a critical role in regulating financial matters in a country, particularly the Central Bank. However, political interference has been blamed for continued interference with how the financial regulators operate. This has been contributed by the fact that politicians like manipulating and controlling these institutions for their own gains. In his lectures, Bernanke (2012) argued that central bank should be allowed to make independent decisions without political interference in order to have sound decisions. Studies have documented that political interference in the financial sector not only hinder how these institutions operate, but also interfere with how regulators enforce regulations. Financial regulators are, therefore, unable to take actions on banks that do not follow the laid down rules and regulations. When political interference is evident in the financial regulatory bodies, recognition of severity of crisis is delayed, intervention needed is also slowed and consequently raise the cost of the crisis to tax payers. Shielding financial sector from political interference helps to improve the quality of regulation and supervision. This helps in preventing financial crisis. Financial regulators have two main purposes. First, they are mandated to protect the consumer. Second, they are also mandated to maintaining financial stability of financial institutions. When political interferences come in, these two roles of the regulator are abandoned. For instance, in 1997, political interference in the regulatory bodies of East Asia led to postponement of recognition of severity of crisis, which led to increased crisis. In Korea for instance, banks were regulated by the ministry of finance and economy instead of the central bank. Due to the weak regulatory framework of the ministry, the 1997 crisis was realised. In Indonesia, politically connected banks led to poor enforcement of regulations. However, when crisis struck, the central bank overrode procedures of handling the crisis as per the directions direct from the president. According to Bernanke (2012), individuals in the financial regulatory institutions should focus on making long-term decisions rather than just focus on short-term political interests. In addition, politically appointed individual to head or manage regulatory bodies would worsen the situation by being motivated by short-run electoral considerations in making decisions, something that would lead to financial crisis. Studies have documented that countries where elected officials interfere with monetary policies the results are excessive inflation. However, countries with central banks that are independent, average rates of inflations are noted. Nevertheless, heated debate has for long been on the role of the government in appointing and dismissing individuals to run central bank. In order to have such matters cleared, several legal policies have been put in place in order to allow central bank operate independently. For instance, the Federal Reserve’s goals are set in its legal charter, but it has been argued that these goals are described in a vague manner and terms. All in all, since it’s the Fed that sets the goals without any political interference, the level of performance is believed to be better than goals set by the government for the central bank in some countries. The level of independence of the financial institutions is determined by several factors. First, the chief executive office of a bank should be appointed by the central bank board instead of the finance minister. Secondly, central bank is considered to be independent if its charter states that price stability is solely the mandate of the central bank. Lastly, the independence of the central bank is noted higher when a set of limitations are put in place to limit government ability to borrow from the central bank. However, it is apparent that a country where the rule of law is not strong, central bank is actually and highly embedded in the political culture than on the laws governing the institution. In light of this, it is critical for governments to set up mechanisms of allowing central banks to operate independently. Conversely, the central bank should instill measures that ensure that its objectives take account of the government’s objectives in order to strike a balance on the best policies to put in place in order to avoid crisis. Conclusion Although many countries allow banks to run independently, they tend to interfere with the operations of the central bank. However, the overall independence of financial institutions should begin with the independence of the central bank. In this regard, reforms should be prioritized in order to ensure that accountability in the financial regulatory bodies prevails. This would ensure that financial crisis is avoided. In addition, governments should guarantee the independence of the financial regulatory bodies in order to allow them offer long-term decision for the country. Reference: Bernanke, B. (2012). Political independence of FED. Retrieved on 18th Oct 2013 from: Read More
Cite this document
  • APA
  • MLA
(“Political independence of FED Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Retrieved from
(Political Independence of FED Essay Example | Topics and Well Written Essays - 500 Words)
“Political Independence of FED Essay Example | Topics and Well Written Essays - 500 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Political independence of FED

Critical Concepts in Political Science

Globalization, accompanied by liberal rhetoric, is accused in losses of the cultural identity, the insufficient accountability of large transnational corporations, deterioration of the rights of workers, an increase of distance between the rich and poor countries and between classes. Liberalism is also suspected in promoting the capture of authority by the countries of the West and in particular the USA above the whole planet.
The modern world experiences fundamental and dynamic changes. Transformation of international relations, the termination of confrontation and consecutive overcoming of consequences of the Cold War have expanded opportunities of cooperation on the international scene. The threat of the global nuclear con...
8 Pages(2000 words)Assignment

The Twin Pillars of the Canadian Political System

That is why this paper will establish that Canada’s federal-parliamentary form of government suits its needs and, therefore successful in terms of nation-building.
Canada is the country that introduced a combined two pillars in its constitutional order to the world - parliamentary government and federalism. This brand of the political system was established in 1867 and is fondly referred to by Canadians as “confederation” more symbolically because Canada is technically a federation. The usage refers to the act of bringing separate units together rather than the essential character of the political structure that was created. 
Federalism is a form of government that is anchored on a constitutional d...
6 Pages(1500 words)Assignment

Diamonds in Sierra Lionne and the Impact the Business Has on the Social and Political Areas of Sierra Lionne

Diamonds are commonly associated with glamour, love, and affluence but the discovery that they were financing conflicts in Sierra Leone, The Congo, Liberia, and Angola took the ‘shine off the stone.’  “In some African countries, such as the Democratic Republic of Congo tens of thousands of civilians have over the past years been killed or tortured and millions have been displaced” (International Secretariat, 2006). Many came to realize that they not only financed genocide and other acts of vulgar inhumanity by purchasing a diamond but were also wearing and flaunting this symbol of human suffering. The main source of this horrific revelation to the world community was last year’s movie ‘Bloo...
7 Pages(1750 words)Term Paper

Socio-Political Aspects of Mental Health Nursing

It seems that nursing care provided in people around the world is not independent of particular socio-economical factors. More specifically, it has been found that the race, the gender, the social class or the age of the patients can influence the perceptions and the behavior of nurses within a specific clinical environment. Regarding this issue it is suggested by Julian (2003) that ‘“ethnicity or culture per se cannot account for inequalities in health; rather, the material disadvantage is the crucial variable; however, it is also clear that eth­nicity and race cannot be reduced to class; as a result, if culture is not taken into account in the formula­tion and implementation of health programs, they are doome...
11 Pages(2750 words)Term Paper

Cultural History Versus Political History: The Varying Methods of the Two Fathers of History

Even though they have these similarities and have both been bestowed with the same title, these two historians drastically differed in their approaches.

Herodotus had another title bestowed upon him; he was also called the “Father of Lies.” Much of what is known of him has been gathered from his own writings as few other sources are available from his actual life. It should also be noted that the veracity of this information is in question as Herodotus was known to invent much in his own work, and it was sometimes the practice in Ancient Greece to attribute events from the life of one person to another; for instance, it has been questioned if the accounts of Herodotus’ exile are only due to the fact th...
10 Pages(2500 words)Essay

Political Ideologies and the Environment

Man has lost touch with the environment to gather his own empirical evidence, study it vis-à-vis the knowledge handed him down the generations and make his independent judgment. Thus his thinking process is chained to the scientific and economic superstructure.
The early part of the twentieth century saw the emergence of the knowledge society. The transmission of knowledge propels social and economic change. Out of the knowledge, society grew the energy-guzzling and environmentally unfriendly consumer society. On the vestiges of consumer society now emerges the anxiety-laden risk fraught society Man, the main protagonist, knows little of his importance and is in haste to accomplish things, knowing-well the risk fraught...
6 Pages(1500 words)Assignment

Political Thought

In the nineteenth century, the term democracy still had uncomplimentary connotations, most of the time; some understand it as a system of mob rule. Now, however, we are all democrats. Liberals, conservatives, socialists, communists, anarchists, and even fascists are all eager to proclaim the virtues of democracy and to demonstrate their own democratic credentials. Indeed, as the major ideological systems faltered and collapsed in the late twentieth century, the flames of democracy appear to burn yet more strongly (Huth & Allee, 2003). As the pull of socialism paled, and the intrinsic worth of capitalism has been called into query, democracy appeared as possibly the single unwavering and lasting principle in the postmodern poli...
6 Pages(1500 words)Assignment

A democratic political system is an essential condition for sustained economic progress. Discuss

What is now clear is that democracy is superior when it comes to countries that have a heterogeneous mix of people and cultures since it is imperative that all sections of society be carried along if the process of economic development has to succeed. In case this does not happen, the concerned country faces the risk of social unrest and the inability of the government to carry all the citizens along with the process of economic development.

If we look at some of the competing ideologies of the 20th century. Communism was the dominant ideology of many countries of the eastern bloc. The basic tenet of communism is the absence of private profit and state ownership of the factors of production. This means that all workers...
11 Pages(2750 words)Term Paper

American Political Communications

...Political communication: Today, voters no longer make decisions based only on personal opinion but view most issues through the eyes and ears of the media. Most options arise from interpretation of the symbols obtained from mass media. Political advertising is a prominent media for reaching voters. Political advertisements aim at increasing issue knowledge, influencing perceptions of the candidate’s character, altering attitudes and affecting candidate preference. In most political advertisements, politicians essentially promote themselves, their thoughts, beliefs, values, image and political propaganda. These advertisements can have a rather persuasive influence on voters. Political ads can convey both positive and negative feelings...
6 Pages(1500 words)Essay

Comparison of the Political Orientation of Trade Unions

Austria or you may call is the Republic of Austria in official terminology is located in Central Europe. Although the population figures do not touch the danger limit but the talent and resources are worthwhile there. Germany and Hungry are also near this region. Italy is in the south of Austria. Switzerland will be seen in the west. So, now you can realize the importance of this region clearly.
The GDP is also impressive here. You can say the economy is strong and it has much depth. The strong social market economy is the result of development and proper management by the government (DArt & Turner 2008). Traders find flexibility in business operations. Labor has a positive approach to work and jobs.
There was a tren...
9 Pages(2250 words)Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Political independence of FED for FREE!

Contact Us