RBI vs govt: How other central banks function

NEW DELHI: Amid the ongoing tussle between the RBI and the Centre over a host of issues, here is a lowdown on how other central banks function across the world.


Read also: Govt opts not to react to RBI's 'unilateral aggression'

The

US Federal Reserve

: Like other central banks, the Fed is an independent government agency. It is accountable to the public and the US Congress. Members of the board of governors are appointed for staggered 14-year terms and the board chair is appointed for a four-year term. Elected officials and members of the administration are not allowed to serve on the board. The Fed does not receive funding through the congressional budgetary process. The financial statements of the Federal Reserve Banks and the board of governors are audited annually by an independent, outside auditor.

The Bank of England (BoE): The BoE is owned by the UK government. It has specific statutory responsibilities for setting policy rates, carried out within a framework set by government but free from day-to-day political influence. Parliament gives specific goals and responsibilities. The government sets the target — which is 2%. A panel meets to agree interest rate decisions eight times a year. There are other panels on other issues, which ensures that the financial system is working properly to serve UK households and businesses. The BoE is answerable to both parliament and the public.

European Central Bank (ECB): It manages the euro and implements monetary and economic policy for the EU. Probably the most independent of central banks, the ECB charter prevents it from backing any government. However, it is criticised as being non-independent because it is at the mercy of the governments of Europe's creditor countries.

Bank of Japan

: It has a legal mandate to maintain price stability. The government is not allowed to sack the central bank governor or members of the board but parliamentarians have the right to appoint them. Bank regulation is done by the Financial Services Agency.

People's Bank of China: The Chinese central bank is subservient to the communist party and its national objectives. It is responsible for mainlining growth, price stability, currency stability and health of financial sector.

Central Bank of Argentina: RBI deputy governor

Viral Acharya

used the example of the constitutional crisis in Argentina. The Cristina Fernandez-led government in 2010 attempted to raid the central bank's reserves, resulting in bond yields shooting up and foreign investors exiting.

Turkey Central Bank: The sharp depreciation in emerging market currencies was seen to have been triggered by the fall in the Turkish lira. The collapse of the lira has been attributed to Turkish president Recep Tayyip Erdogan taking control of Central Bank of the Republic of Turkey and preventing it from raising rates.

(Source: Central bank websites, agencies, WSJ)