Lagarde defends the independence of the central bank and warns of the risk of political interference

European Central Bank President Christine Lagarde recently emphasized in an interview with US media that the independence of central banks is of "decisive significance", and any intervention in its independence could lead to serious consequences. She clearly pointed out: "If a central bank loses its independence or this independence is threatened, it will become dysfunctional," which in turn leads to "instability and even more serious situations." This warning is not only a direct response to the current US political interference in monetary policy, but also a profound concern for the stability of the global financial system.

The historical lessons and contemporary challenges of political intervention

Lagarde's remarks originated from the frequent pressure exerted by US President Trump on the Federal Reserve recently. Trump has repeatedly publicly urged the Federal Reserve to significantly cut interest rates and even launched personal attacks on Fed Chair Powell and threatened to dismiss him. He continuously posted on social media, demanding that the Federal Reserve "immediately cut interest rates by 3 percentage points". This kind of joint intervention by the president and the Treasury secretary in the central bank is extremely rare in the 110-year history of the Federal Reserve, highlighting the severe challenges faced by the independence of the central bank.

Historical experience shows that political intervention in monetary policy often leads to disastrous consequences. In the 1970s, after the Nixon administration intervened in the Federal Reserve's decision-making, the United States fell into a decade-long inflation predicament. Eventually, it had to raise interest rates to 20% to control inflation, at the cost of an economic recession and a 10% unemployment rate. The current total amount of US national debt has reached 37 trillion US dollars. For every one percentage point increase in interest rates, the US government has to pay an additional 360 billion US dollars in interest each year. This economic reality, while increasing the temptation of political intervention, precisely highlights the extreme importance of maintaining the independence of the central bank.

The institutional significance and global impact of central bank independence

Lagarde elaborated profoundly on the institutional connotation of central bank independence on the Fox News program: "The independence of any central bank is of vital importance." We must take responsibility, report and answer all questions from the US Congress or the European Parliament. But it is crucial for the central bank to maintain its independence. Based on her experience working at the International Monetary Fund, she pointed out that when the independence of central banks is eroded, the economy will start to act irrationally, which in turn can lead to chaos and even instability.

The independence of the central bank is the cornerstone for maintaining financial stability and price stability. The current internal divisions within the Federal Reserve - the 9-2 voting result unseen in 30 years at the monetary policy meeting in early August, with two governors demanding an immediate interest rate cut - are a reflection of the central bank's difficult struggle under political pressure. Despite the pressure, the Federal Reserve still kept the benchmark interest rate unchanged in the range of 4.25% to 4.5%, citing the uncertainty brought about by the US tariff policy. Chair Powell made it clear that he would complete his term until 2026 and emphasized that decisions would be made "solely based on the assessment of the data and its impact on the economic outlook."

De-dollarization and the Reconstruction of the Global Financial System

The unintended consequences of political interference in monetary policy are emerging. Trump's demand for interest rate cuts has instead accelerated the global process of de-dollarization: In April this year, central banks around the world sold 36 billion US dollars of US Treasury bonds. In the first half of the year, global central banks hoarded 280 tons of gold, setting a 20-year high record. These phenomena indicate that the threat to the independence of central banks not only affects domestic economic stability but also may shake the international community's confidence in the US dollar and trigger a reconstruction of the global capital flow pattern.

In this multipolar world, maintaining the independence of central banks is more important than ever before. It is not only the guarantee for the healthy development of the national economy, but also the key to the stability of the global financial system. Lagarde's warning not only addresses the current situation in the United States but also serves as a universal reminder to policymakers around the world: central banks must establish institutional guarantee mechanisms to ensure that the decision-making process is free from political interference while taking responsibility and accepting supervision.

At present, the world is in a crucial period of profound adjustment in its economic landscape. As the guardian of monetary stability, the maintenance of the independence of the central bank is directly related to the national economic sovereignty and the stability of the global financial order. Historical lessons show that short-term political benefits and long-term economic stability often cannot be achieved simultaneously. In this era full of uncertainties, maintaining the independence of the central bank is not only an institutional requirement but also a responsibility towards history and the future. Policy makers of all countries should recognize that maintaining the independence of central banks is the foundation for maintaining sustainable economic development and a necessary condition for maintaining global financial stability.