Finance, Forex and Investments

Why is it important to separate central bank and the goverment?

In my country, the central bank has been separated from the executive branch of government. The central bank governor used to be a public post in the cabinet. Now, the president elect candidates for board of governors to be elected by the house. The elected board then works along side the house and the cabinet to maintain and execute monetary policy. Why is this the 'better' way (according to some economist)? Why is this NOT the 'better way (according to some others)? PS: I'm not an econ student so easy on the jargon pls.

Public Comments

1. Government is comprised of well-intentioned politicians. Politicians, well-intentioned or otherwise, pander to their constituencies. Pandering means getting rents for them (ie. "spread the wealth around"). If politicians find that there is not enough wealth to spread, then they will make more money so that they have something to give to their constituents. Of course, making more money just causes inflation and devalues the money and destroys the wealth of those who have some. Governments cannot be trusted not to arbitrarily make money. Governments must have little to no influence on money supply. Governments will be corrupt sometimes and well-intentioned the rest of the time... but good intentions is no excuse to destroy an economy.
2. First rule, if you want something efficiently done, don't go through the government to do it. Secondly, if you have to go through the government, don't go through the house to do it, because it takes longer or doesn't even happen. It would be an interesting number, how many bills are introduced in committee and how many actually make to the floor to be voted upon. To give one man, executive branch in this instance, power to create money is good when it is needed. However, there in lies the problem as well. Need can be defined in so many ways that corruption is almost 100% guaranteed to occur. If the executive is not checked, the central bank can and inevitably will use it as his own piggy bank of wishes. Congressional delay is the greatest weakness when it comes to monetary decisions.
3. Central Banks are counterproductive and should be abolished. Central Banks, even though they are private institutions, allow for redistribution of wealth on both a domestic and national scale. They use the term "loans" as a disguise to shift money around to political interest groups whether it be big banks, political constituencies, or other countries governments (i.e. the World Bank/IMF). These loans are rarely paid back and are funded by the taxpayers through tax revenue and future inflation. In the U.S., the Fed is separate from the government, yet it contains power that only Congress should have and that is the power to print money. It doesn't matter if central banks are "private" or not from the government, they are still used to carry out the same corrupt policies. In our case, the Fed promotes socialist policies and nobody has the power to stop this from happening.
4. In the short term the government may be tempted to print money to increase the economic growth of the country, thus decreasing unemployment, while the costs, in terms of higher inflation, are paid over the medium to longer term. In fact, there is strong empirical evidence that the independence of the central bank results in lower inflation, which in turn ensures a more stable environment for economic employment growth.