The Politics of Reversing Central Bank Independence

The recent confluence of populism, nationalism, and mounting debt has put central banks under political pressure. When and how do governments succeed in politically subordinating central banks? To answer these questions, we derive a novel macro-historical theoretical perspective on the making and unmaking of the political independence of central banks. Complementing new domestic political-conflict perspectives on central banking, we argue that central bank independence (CBI)—splitting central banks from governments—is designed foremost to protect international sovereign lenders. However, under certain conditions, politicians can weaponize central banks against creditors. Tracing the rise and fall of CBI in interwar Germany, we demonstrate how the Reichsbank was used by international lenders to control the Weimar Republic and later by the Nazi regime to expropriate those same creditors.