safeguarding central bank independence1 javier guzman calafell2 the broad turn towards central bank independence can be traced back to the 1970s and 1980s. many countries were experiencing high inflation. therefore, attention focused on overcoming ‘ time inconsistency ’, a problem inherent to monetary policy. this is the risk that policymakers, for political reasons, will aim for short - term gains through expansionary policies, since their costs will not be visible immediately. proposals to enhance central bank independence emerged as a viable device to face these challenges. the case for independence has strong underpinnings, but there has been growing doubt over its merits. this was initially a consequence of the monetary policy response to the 2008 financial crisis, particularly in the largest advanced economies. first, amid low inflation, some argued central bank independence was no longer justified. second, as major central banks implemented quantitative easing measures, there were concerns these institutions would end up shaping fiscal policy, which is beyond their remit. third, greater central bank involvement in financial stability raised doubts about entrusting them with too many endeavors, and on the consistency of these tasks with independence. fourth, detractors of independence identified it as an obstacle to coordinate monetary and fiscal policies, while also worrying about the distributional implications of quantitative easing. this is a slightly edited version of an article prepared for “ global public investor 2019 ”, published by the official monetary and financial institutions forum ( omfif ) on june 12, 2019. deputy governor at the banco de mexico. the views and opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. these arguments are paradoxical. in the absence of an adequate and timely reaction by fiscal and structural policies in the aftermath of the financial crisis, monetary policy became the only tool to bolster the world economy. there are also strong indications that, without independence, central banks would probably not have been able to undertake the measures needed to face the crisis. furthermore, the above - noted question marks about the merits of central bank independence can be easily refuted : independence is still needed in a low - inflation environment. inflation declined partly as the result of the recessionary effect of the financial crisis. there are other factors helping to contain inflation, but their future potential impact is uncertain. trade - offs with financial stability goals have always existed, as well as incentives to consider them. consistency of public finances with

the undermined efficiency with which labor, capital, and other factors of production are allocated under conditions of lessened competition and more restricted access to global markets, thereby inhibiting the innovation process and the consequent gains in productivity, a fundamental driver of growth. in addition, higher trade barriers also hamper to a significant extent the international transfer of technology, know - how and best business practices, foundations on which emerging and developing economies are particularly reliant. to the above one must add the adverse effects on confidence and financial conditions. in this respect, it may be useful to note that one of the main reasons behind the stagnation of private investment in my country for a significant period already, is precisely uncertainty related to trade negotiations with the united states and canada. thirdly, notwithstanding weakened demand pressures arising from subdued levels of activity, inflation is likely to adjust to the upside under a more protectionist environment. further to the direct effects on imports prices brought about by higher tariffs, less competition from abroad in labor and goods markets pushes domestic prices and wages upwards, while the abovenoted efficiency losses on the supply side of the economy ( including those resulting from the potential disruption of gvcs ) should act in a similar way. in fact, we must not forget that the effect of international trade on competition and production costs is one of the major explanatory forces for the period of low inflation that we have seen at the global level in recent years. as noted earlier, the hard evidence that to date can be gathered regarding the impact of the ongoing episode of increased protectionism in the global economy is still scant. if any conclusion can be drawn, it is that said effects have been relatively small, albeit not insignificant and definitely not to be overlooked. emerging market economies ( emes ) have faced tighter ( and tightening ) external financial conditions over the last several months, which have translated into declining capital inflows and the consequent pressures on their exchange rates. in addition to specific, idiosyncratic factors that have been at play, especially in instances where episodes of acute stress have been present, this has reflected fundamentally the tightening of monetary policy by the federal reserve, in an environment of global uncertainty deriving from a combination of factors. obviously, a more restrictive trade policy stance in the united states and other countries has been one of them, although the extent to which this has affected different economies is varied. in this regard, it is again relevant to refer to the mexican experience