The Fed is not the only central bank under political attack

Pedestrians walk past the Bank of England (BOE) in the City of London, U.K.
Luke MacGregor | Bloomberg | Getty Images

One of the architects of the Bank of England's independence from the U.K. government now claims political checks and balances should be re-introduced.

The central bank was granted independence from political control in 1997 by then Chancellor, Gordon Brown, who said he wanted to grant the bank freedom to "break from the boom bust economics".

Now the man who helped draft that break and former shadow chancellor, Ed Balls, has co-written a paper on central banks suggesting the independence of the Bank of England (BOE) has gone too far.

The paper, co-authored with Anna Stansbury and James Howat of Harvard University, argued that the BOE needs more political oversight in order to avoid "groupthink".

"After the centralization of prudential regulation – both of the micro and macro variety – and systemic risk monitoring inside the Bank of England, there is a danger that the UK money-credit constitution is too concentrated in the central bank, leading to the possibility of groupthink, a lack of oversight and ultimately risks to central bank independence," it reads.

In a BBC interview Thursday, Balls defended his apparent U-turn by suggesting central bank independence must also come with some responsibility.

"If you take the Bank of England, it's good to have a financial policy committee making decisions about our whole financial system, but frankly, there's not sufficient accountability.

"There's not a clear target, they're making decisions which are quite distributionally politically sensitive. If things go wrong, then the politicians would have to step in," he said.

Balls said the case for independent central banks remained but more reform is needed.

"The reforms we've seen over the last few years have hugely concentrated power in central banks - I think it is unfinished business."

Carney swipes back

Mark Carney, governor of the Bank of England (BOE), speaks during the Institute of International Finance G20 Conference in Shanghai, China, on Friday, Feb. 26, 2016.
Qilai Shen | Bloomberg | Getty Images

On Tuesday, Bank of England Governor Mark Carney defended central bank policies after criticisms from both U.K. Prime Minister Theresa May and U.S. President-elect Donald Trump.

On the campaign trail Trump had accused the U.S. Federal Reserve of "creating a false economy" by keeping rates too low.

And Theresa May used her party conference speech to highlight her belief that the prolonged low rate environment had increased an imbalance of wealth.

Swiping back, Carney said too much focus by politicians on monetary policy amounted to a "massive blame deflection exercise".