INDEPENDENT CENTRAL BANK BETWEEN PRICE AND FINANCIAL STABILITY

Abstract

The primary objective of an independent central bank is price stability, as well as financial stability in broader sense. For a long time, it was believed that the achievement of price stability implies financial stability. The global financial crisis of 2007/2008 confuted such a belief. During and after the crisis, the responsibility for financial instability was transferred to central banks. The question is not only of theoretical, but also of practical importance. Unlike price stability, financial stability is not defined and is very complex. The role of the central bank is extremely important for preservation of financial stability and fight against the financial crisis, because it provides the necessary liquidity when panic occurs. That is its natural role. Effective supervision and regulation play an important role in the fight for financial stability. All of the above motivated the author to choose this topic.