Endgame for central banks

THE Swiss National Bank's (SNB) sudden abandonment of the Swiss franc ceiling had wide consequences last week as we were all taken by surprise. The fact that it would and should happen eventually was not lost on the market, but the SNB was, as late as last weekend, talking tough and telling the market that the floor was an integral part of Swiss monetary policy. Then suddenly it was not.

I fully understand the rationale for the move but, like most of the market, I remain extremely disappointed in the SNB's communication and handling of the issue. But isn't the bigger lesson or bigger question this: Why is it that most people trust or bother to listen to central banks?

Major central banks claim to be independent, but they are all ultimately under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that's well and good in principle until an economy or the effects of a monetary policy decision begins to spin out of control. At zero bound for growth and for interest rates, politicians and central banks switch to survival mode, where rules are bent or even broken to fit an agenda of buying more time.