mugur isarescu : in support of central bank independence address by mr mugur isarescu, governor of the national bank of romania, at the conference on “ the role of a central bank in modernising society – challenges in emerging economies ”, organised by the national bank of moldova, bucharest, 7 april 2021. * * * dear governor armasu, distinguished guests, adies and gentlemen, good morning, let me start by congratulating the national bank of moldova on the initiative of holding this conference. i believe that discussions on the proposed topic are welcome at the current juncture, when light needs to be shed both on the measures to rescue the economies hit by the covid - 19 pandemic and on central banks ’ mission. the question about what a central bank can and cannot do is always on the agenda. governments and central banks throughout the world have promptly stepped in to address the fallout from the pandemic by means of social, economic, fiscal and monetary policies. such comprehensive and unprecedented support has proven that, in situations like this, the concerted action of the authorities – particularly monetary and fiscal ones – is critical to safeguarding the smooth functioning of markets, of economic and social mechanisms. the topic of this roundtable, the role of a central bank in modernising society – challenges in emerging economies, is however more comprehensive than the response to the challenges of the unprecedented medical crisis we are currently facing. by choosing this topic, the national bank of moldova and the central bankers at its helm prove, yet again, if it were still needed, that they are constantly preoccupied with playing an active role in the development and modernisation of the moldovan society on the road to the european union. let me take the opportunity of opening this event to highlight – in my capacity as a long - standing partner of the national bank of moldova – the remarkable progress your institution has made on its path to a european - style central bank. when acknowledging the road followed by your institution, i cannot help recalling the bumpy ride of the national bank of romania in the same direction, the challenges we faced along the way and how we overcame the hurdles. that is why i believe we, at the nbr, are qualified to perform an accurate, realistic evaluation of the progress achieved by our colleagues in chisinau, all the more so that our central banks boast a tight bilateral institutional cooperation spanning three decades, alongside the strategic partnerships between our institutions with eu, imf and world

bank support. dear colleagues and dear friends in chisinau, you can be sure of the nbr ’ s full support in the national bank of moldova ’ s endeavour to align to european standards and practices. ladies and gentlemen, distinguished audience, the primary objective of a european central bank is to pursue price stability in the domestic economy. the outcome of the 2008 crisis strengthened the idea that ensuring financial stability is not at odds with achieving the primary objective, but is even beneficial in this respect. fulfilling this objective essentially hinges on central bank independence – political, legal, functional. this is a wide - ranging topic. please allow me, however, to elaborate only on a few ideas about monetary policy independence ; it implies decisions particularly with regard to the key policy rate, the exchange rate policy, international reserve management, setting prudential requirements on minimum required reserves in the banking system. also worth mentioning is the central bank ’ s role as agent when it comes to borrowing via issues of government securities conducted by 1 / 3 bis central bankers'speeches fiscal authorities on the primary market. at the same time, a central bank manages liquidity in the economy by granting credit against eligible collateral, consisting especially in government securities, and may resort to extraordinary interventions for the purpose of ensuring an adequate level of liquidity, for example via quantitative easing programmes, purchasing financial assets – government securities traded on the secondary market – and holding such instruments in its own portfolio. the simple listing of these areas in the monetary policy scope suggests that we are dealing with decisions on highly - technical, sophisticated mechanisms and instruments, based on complex information, working correctly only in an environment of high professionalism. central bank independence, on the basis of a clear mandate, is therefore of the essence. one field where this is all the more obvious, because it has to do with competition on the global market, is the management of forex reserves. in principle, they ensure – especially in the case of emerging economies – the resources to overcome external imbalances and to safeguard a relative stability of the domestic currency ’ s exchange rate around economic fundamentals. the reallocation of reserves for discretionary use and their monetisation strongly erode these essential equilibria, significantly impairing market functionality and the credibility of the central bank and of any government, ultimately to the detriment of society itself. maintaining and managing an adequate level of international reserves, through the competence and professionalism of the central bank, shelter the country from terrible crises