Is There an Ideal Set Up for a Central Bank?

Abstract

The primary goal of a central bank is to develop and maintain an efficient monetary system whose primary goal is price stability, but it remains an open question as to what an ideal central bank should look like. The answer to this question is important, but it would be a bad mistake to believe that there is only one best way to organize a central bank in an emerging democracy. Most high-income countries, and many low-and middle-income countries, have achieved success in maintaining low inflation and price stability, even though there are substantial differences in the organization, structure and functioning of their central banks. We need to think out of the box about the design of the central bank and recognize that there are different ways to achieve the same end. Success in achieving low and stable inflation – price stability – is relatively recent in a number of countries. We may well discover that some institutional arrangements are more robust over time than others, as we observe how various arrangements stand up to stresses not yet observed.