Explain the advantages or arguments for having an independent Central Bank.

Expert Solution

Advantages.

1) better monetary control, the experts of central bank, majorly great economists, are much more knowledgeable about the long term results than any politician etc. Therefore, they will create better policy without any political pressure. As the policies of political parties revolves around vote bank.

2) politicians usually announce for expansionary policy with lower interests and higher spending. This seems very good to people but economists understands its consequences, that it may destroy the economy with inflation followed by recession. Hence, independent central bank has the power to not let that happen.

Institutional feature such as monetary policy, whether it would be expansionary or contractionary is decision of central bank and no one can interfere in it.

Also, central bank is the bankers bank, it can also direct other banks on what amount of loan to be given, what amount to be kept, and to whom what percentage has to be given as loan, in order to ensure economical and social balance.

Rahul Sunny answered 2 years ago

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