Central Bank Independence

To many Americans, the idea that a central bank should make crucial economic policy decisions with no direct political accountability either to the citizenry or to their elected representatives seems the antithesis of democracy. Central bank independence, however, is but one solution to a problem endemic to fiat money. Because fiat money has no intrinsic value, the willingness of individuals to hold it depends solely on their faith that the government will not depreciate its purchasing power. Uncertainty about the long-term value of money arises because inflation generates government revenues and, according to some economic theories, can lead to a temporary surge in employment and output.