Proofread your answer before submitting your paper. Short Essay Discuss the arguments for and against an independent central bank. A preliminary list of important items to be included in your answer. The task of a central bank is to maintain the value of the nationms medium of exchange. Historically close ties between the Treasury and the central bank have fostered inflation as the central bank becomes involved in deficit financing.
Inflation means a reduction in the real value of money.
Close ties between the central bank and the government can lead to excessive political influence on the central bank. The election process can lead to a political business cycle. Politicians and the public do not have the expertise to determine monetary policy. It is undemocratic to have monetary policy determined by an elite group who is not directly responsible to the public. Public officials are held accountable for economic policy even though they have no control over the central bank.