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Moreover, the reason politicians may want to interfere in monetary policy is that low interest rates remain a potent, quick method to boost an economy. And while politicians know that there are costs to besieging an independent central bank – financial markets may react negatively or inflation may flare up – short-term control of a powerful policy tool can prove irresistible.

Legislating independence

If monetary policy is such a coveted policy tool, how have central banks held off politicians and stayed independent? And is this independence being eroded?

Broadly, central banks are protected by laws that offer long tenures to their leadership, allow them to focus policy primarily on inflation, and severely limit lending to the rest of the government.

Of course, such legislation cannot anticipate all future contingencies, which may open the door for political interference or for practices that break the law . And sometimes central bankers are unceremoniously fired .

However, laws do keep politicians in line. For example, even in authoritarian countries, laws protecting central banks from political interference have helped reduce inflation and restricted central bank lending to the government .

In our own research, we have detailed the ways that laws have insulated central banks from the rest of the government, but also the recent trend of eroding this legal independence .

Politicizing appointees

Around the world, appointments to central bank leadership are political – elected politicians select candidates based on career credentials, political affiliation and, importantly, their dislike or tolerance of inflation.

But lawmakers in different countries exercise different degrees of political control.

A 2025 study shows that the large majority of central bank leaders – about 70% – are appointed by the head of government alone or with the intervention of other members of the executive branch.

This ensures that the preferences of the central bank are closer to the government's, which can boost the central bank's legitimacy in democratic countries, but at the risk of permeability to political influence.

Alternatively, appointments can involve the legislative power or even the central bank's own board. In the US, while the president nominates members of the Federal Reserve Board, the Senate can and has rejected unconventional or incompetent candidates.

Moreover, even if appointments are political, many central bankers stay in office long after the people who appointed them have been voted out. By the end of 2023, the most common length of the governors' appointment is five years, and in 41 countries the legal mandate was six years or longer. Powell is set to stay on as Fed chair until his term expires in 2026.

The Fed chair position has traditionally been protected by law, as Powell himself acknowledged in November 2024 :“We're not removable except for cause. We serve very long terms, seemingly endless terms. So we're protected into law. Congress could change that law, but I don't think there's any danger of that.”

In the 2000s, several countries shortened the tenure of their central banks' governors to four or five years. Sometimes, this was part of broader restrictions in central bank independence, as was the case in Iceland in 2001, Ghana in 2002 and Romania in 2004.

Low inflation objective

As of 2023 , all but six central banks globally had low inflation as their main goal . Yet many central banks are required by law to try to achieve additional and sometimes conflicting goals , such as financial stability, full employment or support for the government's policies.

This is the case for 38 central banks that either have the explicit dual mandate of price stability and employment or more complex goals. In Argentina, for example, the central bank's mandate is to provide“employment and economic development with social equity .”

Poor monetary policy can lead to rising prices in Argentina. Photo: AP / Natacha Pisarenko

Conflicting objectives can open central banks to politicization. In the US, the Federal Reserve has a dual mandate of stable prices and maximum sustainable employment. These goals are often complementary , and economists have argued that low inflation is a prerequisite for sustainable high levels of employment.

But in times of overlapping high inflation and high unemployment, such as in the late 1970s or when the Covid-19 crisis was winding down in 2022 , the Fed's dual mandate has become active territory for political wrangling .

Since 2000 , at least 23 countries have expanded the focus of their central banks beyond just inflation.

Limits on government lending

The first central banks were created to help secure finance for governments fighting wars . But today, limiting lending to governments is at the core of protecting price stability from unsustainable fiscal spending.