Question

Does Central Bank Independence Improve the Efficiency of Monetary Policy? Discuss with examples.

Answer 1

1) they are free to take decisions about monetary policy and made it flexible enough according to need of economy. Fir example. : soft policy when less liquidity and hard Policy when more inflation or liquidity in market.

2) they are free to take in position of members of committee related to it without any political intervention of government and thus nepotism, corruption etc are prevent and thus process of selection is more democratic.

In such way the monetary policy is without any influence and more beneficial for Weaker section of society . For example: lower repo rate when less liquidity in the market without any political intervention as it is more democratic.

Board of directors or governor are selected democraticly.

3) monetary policy transmission is more and efficient as compare to before. As banking system is not political influence when banking system is more autonomous .