PHILADELPHIA — Philadelphia Federal Reserve Bank President Charles Plosser Friday stressed the importance of maintaining the independence of the Fed while also emphasizing the need for "constraints" on its money-creating power.
Plosser, in remarks opening a Philadelphia Fed conference on the 100th anniversary of the Federal Reserve system, said such constraints are needed to preserve the central bank's "credibility."
"I believe that the fundamental concept of a decentralized central bank has great merit, in part, because it helps to preserve the independence and maintain the public trust in the institution," he said.
"Independence is essential if a central bank is to play its fundamental role in preserving the purchasing power of a fiat currency," Plosser continued. "History is replete with examples of governments using the power to print money as a substitute for making tough fiscal choices, and the results were disastrous."
However, Plosser said "a central bank can never be completely independent, nor should it be."
"In a democracy, independence should come with constraints and limits on the central bank's authority and scope of activities," he said.
Plosser said "the power to print money is a significant one, and central banks should be limited in how they can use that power."
"Such constraints can help build public trust and instill credibility in the institution," he said. "For me, trust and credibility are essential features for a successful central bank ... . I believe we should seek ways to ensure that these qualities are embodied in the institution itself."
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