As anyone who has worked at a central bank understands, operational independence is rarely granted by constitutional decree; and even where it is, the letter of the law has little meaning if political support is lacking. In reality, central-bank independence is fragile, and must be defended every day. In these difficult times, central bankers need to find new instruments to restore the effectiveness of normal interest-rate policies.
To that end, they should seriously consider laying the groundwork for an unconstrained negative-rate policy, which would be far preferable to serving as junior partners in debt-maturity management and quasi-fiscal policymaking. To maintain their relevance, and to shield monetary policy from populists of the left and the right, central bankers cannot afford to rest on their laurels. If they do not rise to the occasion, one of the most important macroeconomic developments of the modern era may not survive.
Kenneth Rogoff, a former chief economist of the IMF, is professor of economics and public policy at Harvard University.