recently had to deal with below - target inflation, one would have to amend the previous sentence to say that the practice and the theory of modern central banking revolve around the benefits of keeping monetary policy independent of short - term political considerations – with respect to both the stabilization of the price level and the temptations of monetary financing of the budget. the views expressed are my own and not necessarily those of others at the board, on the federal open market committee, or in the federal reserve system. see league of nations ( 1920 ). this sentence is adapted from the opening sentence of my paper “ modern central banking ” ( 1994 ), which was written for the conference celebrating the tercentenary of the bank of england. see capie and others ( 1994 ). bis central bankers ’ speeches the earliest central banks provided financing for governments and helped develop the financial system, often by bringing order to the note issue. as the practice of central banking developed during the 19th century, central banks took on the primary responsibility for protecting the stability of the financial system and the external value of the currency. the mandate given to central banks in legislation passed in the 1930s and 1940s typically included both monetary stability and the promotion of full employment and maximum output – and frequently other goals as well. as the inflationary forces that eventually led to the collapse of the bretton woods system gathered strength in the 1960s and 1970s, the focus of monetary policy shifted to the maintenance of the domestic value of the currency. in the decades that followed, central banks began to place greater emphasis on the stabilization of inflation, and that trend has continued to date. 4 although this shift in emphasis originated in the advanced economies, emerging market and developing economies eventually followed suit, with many of them bringing down high rates of inflation and formally adopting an inflation targeting policy framework. even in countries without formal inflation targeting frameworks, stabilization of inflation remains an important objective, sometimes alongside other important objectives such as stabilization of the external value of the currency, stabilization of the macroeconomy, financial stability, and the development of the monetary and financial systems. the u. s. economy and monetary policy in the united states, the federal reserve has, since 1977, been operating under a dual mandate to pursue maximum sustainable employment and price stability. 5 our main challenge, since the global financial crisis, has been to make rapid ( or at least as rapid as possible ) progress toward achieving these objectives. while it has taken a long time, and extraordinary monetary policy actions, the

policies and practices. new york : oxford university press. board of governors of the federal reserve system ( 2015 ). “ federal reserve issues fomc statement, ” press release, june 17. capie, forrest, charles goodhart, stanley fischer, and norbert schnadt ( 1994 ). the future of central banking : the tercentenary symposium of the bank of england. cambridge, england : cambridge university press. international monetary fund ( 2004 ). “ monetary policy implementation at different stages of market development. ” washington : imf, october. — — — — ( 2014 ). “ conditionality in evolving monetary policy regimes ( pdf ). ” washington : imf, march. laurens, bernard j., kelly eckhold, darryl king, nils maehle, abdul naseer, and alain durre ( 2015 ). “ the journey to inflation targeting : easier said than done — the case for transitional monetary arrangements along the road, ” imf working paper wp / 15 / 136. washington : imf, june. league of nations ( 1920 ). report of the international financial conference. brussels : league of nations, october. see, for example, laurens and others ( 2015 ) for a comprehensive discussion on transitional monetary policy arrangements. for related papers, see berg and others ( forthcoming ) and international monetary fund ( 2004, 2014 ). bis central bankers ’ speeches rey, helene ( 2015 ). “ dilemma not trilemma : the global financial cycle and monetary policy independence, ” nber working paper series 21162. cambridge, mass. : national bureau of economic research, may. bis central bankers ’ speeches