Abstract
From 1945 to 1970, the monetary policy was part of the Bretton Woods system. The adherent countries must maintain a fixed exchange rate between their currencies and the U.S. one. With the collapse of this system in 1970, some countries have adopted a floating exchange rate, which is a system where currencies have no official value; the price is formed on the foreign exchange market based on supply and demand.
Nevertheless, many countries have kept a system of a pegged exchange rate. This was particularly true for the European Monetary System (EMS). The monetary policy remained highly controlled by the government.
The upheavals that led to the current system occurred in 1980 with the deregulation of domestic financial markets and the liberalization of capital movements that happened in France in 1986‐1987 thanks to the Single European Act. During those years, central banks have become independent of government. However, before 1990, most central banks were under government supervision, while the U.S. Federal Reserve (FED) already enjoyed considerable autonomy.
The European Monetary System (EMS) has now given way to the definition of a common monetary policy within the euro area. The European Central Bank (ECB) aims to establish the monetary policy of countries in the euro area since 1st January 1999.
Currently, central banks (ECB & FED) are characterized in terms of their institutional
independence:
Freedom to formulate and implement monetary policy (operational independence or instruments)
Independence of leaders, appointed by the government
Assessed financial independence through budgetary control exercised by public authorities, or by how much the state is free or not to finance its expenditure by a direct action or indirect appropriation of the Central Bank.
Therefore, there is no independence of targets. Monetary policy is the government.
