ContextSpeech by Christine Lagarde at the 28th meeting of Francophone central bank governors in Phnom Penh, Cambodia.
Why it mattersA defence of central bank independence as political pressure on central banks grows worldwide.
- Central banks face pressure from governments.
- Supply shocks are hard to interpret, as in the 1970s.
- The global conditions that kept inflation low are changing.
- Keep central banks independent but accountable.
- Earn credibility through action, not just principles.
- Protect monetary transmission while staying within the mandate.
Read the speech summary
1. Napoleon's dilemma
Speaking in Phnom Penh, the President of the ECB opened with Napoleon, who wanted the Banque de France under government control only up to a point, and then tightened his hold on it. The tension remains: a central bank must stay close to the state yet resist short-term pressure. Although the inflation of the 1970s came mainly from oil shocks that central banks misread, later research showed that less independent central banks produced higher and more lasting inflation, and by 2000 over 80% had operational independence.
2. Law is not enough
Independence spread mostly through statutes, while its founders knew that legal status must be matched by proven resistance to interference. In a favourable world of globalisation, rare supply shocks and ample budgets, the difference hardly mattered, and low inflation owed much to that context. As conditions change, credibility gained through action becomes decisive, precisely when decisions are costly and politically sensitive.
3. The ECB's experience
The ECB began in 1998 with legal protections among the strongest anywhere, modelled on the Bundesbank, but no track record; as Lamfalussy foresaw, it would be judged on its deeds. Early vigilance on prices, then unconventional tools during the debt crisis and the era of very low inflation, upheld by courts as within the mandate, and finally the record-fast tightening of 2022, which kept long-term expectations anchored, built that authority over twenty-five years.
4. A harder environment
Supply shocks now occur more often and push prices and output in opposite directions; defence, climate, digital and ageing costs squeeze budgets; and trust in public institutions is falling. De facto independence has weakened over the past decade in nearly half of central banks in economies representing 75% of world GDP. When the Fed Chair defended his institution, public support earned over years helped contain the pressure. Central banks in emerging economies, used to commodity, capital and climate shocks under tight budgets, have long faced what others now discover.
5. Three conditions and a lesson
First, a clear mandate with price stability on top, even at a short-term cost; the Eurosystem supports EU goals only without harming that priority. Second, direct communication with citizens, transparency and accountability, so that words and actions match. Third, room for manoeuvre, which requires sustainable public finances and a resilient financial system, including newer non-bank segments. Trust takes years to build and can vanish quickly, and preserving the value of money depends on it.