The fantasy of independent central banks must stop

Central banks now find themselves in a situation where they are the forced buyers of last resort of government and corporate bonds. T his amounts to “fiscal dominance”, where the central bank is forced to ensure the government’s fiscal solvency and is therefore in a situation of dependence with respect to the government. In reality, central banks are therefore no longer independent at all . T hey no longer have an inflation objective but rather the objective of preventing a public debt crisis (and a corporate financing problem). Only the Bank of Japan has really showed this by switching to an explicit objective of controlling long-term interest rates. This raises the question of whether the fantasy should be maintained that central banks are independent and have inflation targets.