of england and the ecb, generally define three targets : 1 ) the achievement and maintenance of price stability ; 2 ) subject to that, support for the government ’ s other economic objectives, headed by growth and employment ; and 3 ) support for the economy ’ s financial stability. 3. decision - making mechanisms at the bank of israel the law will establish new decision - making mechanisms for the bank. in israel today, as in a few other countries including new zealand and canada, the governor makes the interest decisions alone, under law. he also runs the bank, and is responsible for all administrative decisions. research has shown that decisions made by committees of experts are, on average, better than those made by one expert acting alone. the new bank of israel law will establish two decision - making mechanisms – one in the policy area, and the other in the area of management of the bank. a ) interest rate policy – the monetary committee in most countries decisions on the interest rate are made by a monetary committee that operates in the central bank. generally the monetary committee has some members from outside the central bank and some from within, with the governor of the bank heading the committee. this is the preferred model, which will be specified in the new law. the participation of external members, who are not beholden to the central bank or its governor but are committed to the attainment of the target set for the bank, is an important part of the mechanism of external control over the bank ’ s policy. ( b ) management of the bank – the administrative council the new bank of israel law will specify an administrative council alongside the monetary committee, with an absolute majority of external members, one of whom will serve as chair of the council. the governor and deputy governor will serve as members. this model is the one followed in several central banks in the advanced economies, including the bank of england. the role of the council will be to make decisions related to the management of the bank, such as approving work plans, the bank ’ s budget and wages. the council will also appoint an audit committee from among its external members. all this is intended to provide another system of external control over the activities of the bank. to adhere to the principle of the bank ’ s independence, and its professional expertise, it is essential that the external members of the monetary committee and the administrative council, who will be appointed by the government, should be experts in the relevant fields, free of conflict of interests, and independent of

independent central bank can make decisions with a view to the long term and without paying regard to political timetables. b. governments find it more convenient to ask the central bank to print money in order to finance their activities than to impose taxes or raise capital in the financial markets. such behavior, however, ultimately leads to higher inflation. here i would like to quote the well - known words of keynes in the period of hyperinflation in europe after world war i : a government can live for a long time … by printing paper money … it is the form of taxation which the public finds it hardest to evade and even the weakest government can enforce. this scenario was highly typical of israel of the early 1980s, until it was put to an end in 1985 when as part of the economic stabilization program, a law known as the “ no printing law ” was enacted, which prohibited the bank of israel from granting loans to the government. this was in effect the first step toward the independence of the bank of israel. in the past twenty - five years many central banks around the world have been granted independence, and governments thus relinquished the ability to obtain finance from the central bank and to influence interest rate policy. they did so because they realized that ( a ) without giving their central banks independence, they would probably find themselves in situations of high inflation, as happened in the 1970s and 1980s ; ( b ) the economy performs better with an independent central bank ; and ( c ) as a by - product of the above, globalization had the effect of increasing the importance of central bank independence, in light of the weight that domestic and foreign investors give to that factor as a major consideration in their decisions about the countries in which to invest. this approach received further support from a 1995 study that examined data covering fifteen years and found that central bank independence and price stability are positively correlated. central bank independence was also found to be positively correlated with high, stable growth and low rates of interest. i would like to stress : an integral feature of central banks ’ independence throughout the world is their administrative independence. this is a vital condition, as it determines the resources required for the bank to fulfill its functions. ii. central bank transparency and accountability the independence of a central bank, especially in democracies, must be accompanied by the bank ’ s responsibility to account for its policies and the achievement of its objectives. for that purpose it is necessary to provide it with clearly defined targets against which its performance can be measured. it is