independent central bank in a modern economy. this role is the key issue i want to address today. and since i am a european central banker, i will discuss it from that particular perspective. 2 what monetary policy can do and what it cannot do 2. 1 lessons from history ladies and gentlemen, 1 / 8 bis central bankers'speeches in the 16th century, when conquerors robbed the gold and silver treasures of the americas and brought them to europe, they also paved the way for inflation. early economists ( such as jean bodin and david hume ) learned that the supply of money has an impact on the price level. as long as an economy operates below capacity limits, a larger money supply can result in a higher output of goods and services. but once full employment is reached, more money will ultimately lead to higher prices. with the adoption of fiat currency, it was possible simply to print legal tender. this posed a permanent temptation to governments, as they could use the printing press to finance their spending. giving in to this temptation led to some of the most terrible episodes of hyperinflation, such as in venezuela today, in zimbabwe a decade ago, but also in germany in the distant past. in my country, the enormous government spending during the great war and in the following years eventually brought about hyperinflation. inflation peaked in 1923, when prices doubled in less than 4 days. 2 such astronomically high price increases deeply interfered with people ’ s everyday lives. this was expressed in john maynard keynes ’ quip that people got used to ordering two beers at a time, because the price would rise faster than the beer became warm. 3 extreme cases illustrate one aspect of the costs of inflation. indeed, many people lost their financial wealth in these times. on the other hand, the burden of debtors – the government, in particular – was easily wiped out. it is the weakest groups of society who typically suffer most from inflation. wage earners and transfer recipients like pensioners have only limited possibilities to hedge against it. governor kganyago explained it in a recent speech when he said : “ where monetary policy tolerates higher inflation, this tends to reduce spending power, especially for the poor. ” 4 distributional shifts and the overall economic damage of elevated inflation often create social unrest and political instability. however, history has taught us that deflation, a general, sustained and self - reinforcing decline in the price level, can also be devastating for the economy, as

mandate. however, trust also depends on individual factors. some people tend to trust more in public institutions than others. people also have different preferences, different attitudes regarding inflation, different personal inflation experiences biasing their future expectations. 14 surveys show that knowledge about central bank and monetary policy has a positive impact on trust in the central bank. 15 effective monetary policy communication relies on people having a basic grasp of concepts such as inflation and interest rates. ensuring the public has a basic knowledge of these issues is therefore important for the success of central banks. the bundesbank has been strongly engaged in the field of economic education for many decades, and we have stepped up our efforts in recent years. our main aim is to enhance the public ’ s knowledge about the role of central banks, and the bundesbank in particular. for that purpose, we organise seminars for teachers and lectures for school classes ; we publish teaching aids ; and we run a money museum as a place to learn about the world of money and central banking. in a similar vein, increasing financial literacy was also a key topic during the german g20 presidency two years ago, and the declared objective – in times of digital finance – was to make financial services accessible to people who didn ’ t have access before ( the buzzword here is “ financial inclusion ” ). in such an environment, financial illiteracy is an important channel through which financial instabilities could potentially arise. 16 of course, central banks on their own cannot provide for economic and financial education ; we can only contribute. if the general public is the addressee, easily understandable information is crucial – most people are not economists. there is some evidence that relatively “ simple ” and unsophisticated entertainment programmes can effectively transport economic and financial education messages. i ’ ve heard of a popular soap opera called “ scandal! ” on south african television, which embedded a storyline on excessive borrowing some years ago and which is considered to have had a positive impact on the viewers ’ financial knowledge. 17 and recently, the central bank of jamaica got a lot of attention for tweeting reggae - inspired music videos with lyrics like : “ low and stable inflation is to the economy what the bassline is to reggae music ”. beyond the benefits of price stability the public also needs to understand the limits of monetary policy. for central banks to deliver price stability on a lasting basis, they are ultimately dependent on sustainable public finances and a stable financial system. otherwise, even independent monetary policy risks becoming