mario draghi : central bank independence text of the first lamfalussy lecture by mr mario draghi, president of the european central bank, at the national bank of belgium, brussels, 26 october 2018. * * * advanced economies are now emerging from the aftermath of the great financial crisis. despite facing the largest shock in the postwar period, central banks have succeeded in maintaining price stability and fulfilling their mandates. a key factor behind this has been central bank independence. but in spite of its benefits, its desirability and relevance are nowadays being increasingly challenged. the evolution of central bank independence the rationale for delegating powers to independent central banks evolved mainly from the experience of the 1970s. at that time, policymakers believed that there was a stable trade - off between unemployment and inflation, whereby monetary policy could achieve permanently higher employment at the cost of slightly higher inflation. the trade - off rested on the notion that an increase in the money supply could boost aggregate demand and stimulate employment, while keeping inflation expectations well anchored. this policy was revealed to be time - inconsistent. over time, commitments to control inflation at a later date lost credibility. the public came to anticipate the behaviour of monetary policy and quickly embedded expectations of higher inflation in their price setting and wage bargaining. the trade - off between unemployment and inflation disappeared. 1 in the united states, for example, year - ahead inflation expectations rose steadily from around 4 % in 1970 to 12 % in 1979. 2 inflation stood between 3 % and 12 % for the whole decade. but there was no fall in unemployment, which varied between 4 % and 9 %. in fact, inflation and unemployment had a tendency to rise in tandem. therefore, to overcome time - inconsistency, central banks had to regain credibility as institutions capable of delivering price stability. they thus committed to a non - inflationary path while resisting any political pressure to pursue objectives other than price stability. as alesina and summers showed, central banks that acted in this way – such as the bundesbank – had managed to achieve lower inflation without suffering output or employment penalties. 3 annual inflation in germany from 1970 to 1990 averaged just 3. 8 %, whereas in france it averaged 7. 9 % and in italy 11. 8 %. at the same time, unemployment in germany over the same period averaged just 3. 6 %, whereas in france it was 5. 6 % and in italy 6. 4 %. societies gradually converged on a framework whereby

practice, they determine the concrete effects of the legal tender5 in daily payment transactions. this includes restrictions on the use of the legal tender by way of national regulatory arrangements. such restrictions can certainly vary from one member state to another, but the legal tender status as such, so to speak the “ nature ” of our banknotes, including the core elements of this status mentioned before, must be preserved. we monitor this. i ’ ll come back to this shortly. why does legal tender status exist at all? the relevant provision in the treaty6 does not itself constitute a fundamental right or is not equivalent to a fundamental right ( in any case not according to prevailing opinion ). so there is no “ right to cash ” or “ right to cash payment in all cases ”. but the granting of legal tender status to 1 / 5 bis central bankers'speeches euro banknotes under the tfeu, and thus at constitutional level, does concern fundamental rights and fulfils at the same time an important institutional function. euro banknotes do not exist “ for their own sake ” or to allow us central banks to obtain seigniorage, but for reasons that are protected under constitutional law. cash as legal tender facilitates freedom cash, as a medium of transaction in many instances, opens the way for the exercise of many fundamental rights – it costs money to live and money has to be earned. cash allows privacy and thus safeguards fundamental rights, such as the right to “ informational self - determination ”, freedom of action and freedom of speech. citizens can use cash to exercise their fundamental rights without the state or other third parties being able to immediately track any financial transactions involved. this aspect is particularly relevant considering the criticism i mentioned before that cashfacilitated privacy aids and abets criminal activities. protection of privacy matters to all of us. privacy protects people from the risk of a surveillance state and thought police. no particular link can be established statistically between cash and criminal activities. the focus must be on the fight against crime. cash must not be made the scapegoat. it ’ s astonishing that alternative means of payment, such as bitcoin – very popular among cybercriminals – are subject to much less criticism than cash despite the risks they entail and the scope for misuse. cash as legal tender allows equality and participation the store - of - value function of cash is directly linked to property rights. 7 the easy accessibility to cash, especially for the elderly,