Ex-ECB’s Knot: ‘Central Bank Independence Is Not There for Us, It’s There for You’

28 August 2025

By David Barwick – ALPBACH, Austria (Econostream) – Former European Central Bank Governing Council member Klaas Knot on Thursday stressed that central bank independence was crucial to monetary authorities’ relatively successful handling of the recent inflation surge.

Speaking on a panel at the European Forum Alpbach, Knot, who headed De Nederlandsche Bank until the end of June, rejected the notion that central bankers defended independence out of self-interest.

“Central bank independence is not there for us, it’s there for you,” he said. A comparison of the 1970s oil-price shock with the gas-driven inflation of the 2020s showed this clearly, he argued.

In the 1970s, central banks lacked autonomy, and markets grew accustomed to seeing then-US President Richard Nixon pressuring the Federal Reserve to cut rates even as expectations became “completely unanchored”, he said.

It was only under Fed Chair Paul Volcker, with his monetary “shock therapy”, that inflation was ultimately broken, Knot recalled.

By contrast, the more recent price surge unfolded in the context of central bank independence. As a result, even when euro area HICP peaked at 10%, market-based inflation expectations “never went beyond 2.6%”, he observed.

“That made the disinflation process … much less painful,” he said. “We basically disinflated at full employment. And that is the difference that central bank independence can make.”

Still, he cautioned against speaking “lightly about central bank losses” stemming from certain monetary policy measures. The focus must remain on price stability rather than profitability, but policy also had to respect proportionality and minimise side effects, he said.

Separately, Knot urged close monitoring of stablecoins, calling them “simply very speculative assets” that posed “a huge risk of undermining the singleness of money”.

Weakly regulated stablecoins could even tempt governments to use them as a vehicle to finance debt cheaply, he warned.