Why would successive Australian governments choose to lose routine control of a critical instrument such as monetary policy? Why did they commit themselves to monetary discipline via an independent central bank? And why, in a democracy, has much of the responsibility for monetary policy been delegated to a group of unelected officials, essentially a technocracy? Further, why did a substantial part of the slow evolution towards central bank independence in Australia occur under Paul Keating, who rejected the notion?

Chapter 5 described the events that marked the RBA's transition to independence; this chapter examines the reasons for it.

BELIEF IN NUMBER CRUNCHING?

How important are ideas in explaining the shift towards independence? Researchers such as Capie, Goodhart and Schnadt argue that ‘the enthusiasm for central bank independence’ is directly related to the ‘power of academic ideas whose time has come’. In particular, have governments and politicians been influenced by the numerous quantitative economic studies that purport to show a direct link between CBI and low inflation, or by academic theories that politicians cannot be trusted to run monetary policy?

There is some evidence that such ideas influenced the zealous central banking reforms and the move towards independence in New Zealand after 1989. Australian politicians and central bankers, however, tended to be more sceptical and pragmatic, suspecting the ‘power of academic ideas’ in this area.