Christine Lagarde delivered the keynote address at the 28th Conference of Central Bank Governors of French-Speaking Countries in Phnom Penh on 28 May, where the President of the European Central Bank put the test of central bank independence not in the statutes that grant it but in the credibility a bank earns by resisting pressure precisely when resisting is costly.
The conference, co-hosted by the National Bank of Cambodia and the Banque de France under the theme “Central Bank Autonomy in the Face of State and Public Expectation,” ran from 28 to 31 May and brought together 26 governors from Francophone countries across Europe, the Americas, Africa, Asia, the Middle East and the Pacific. The theme set the terms, and the keynote took them apart, with what Lagarde described binding the host institution as closely as any bank that sat in the room.
The architects of central bank independence had understood that legal provisions alone were never enough, and Lagarde built her keynote on the part of that understanding the world let slip. De jure independence written into statutes, she told the conference, had to be matched by “de facto independence, which is demonstrated through the ability to effectively resist interference.” The doctrine spread in its legalistic form because the years that followed were forgiving, with globalisation absorbing shocks and fiscal space cushioning governments, and in that climate the gap between the law on paper and the independence in practice carried little cost.
Those conditions are now closing. Supply shocks arrive more often and pull inflation and output in opposite directions, defence and the climate transition and ageing populations press on budgets, and trust in public institutions, central banks included, has thinned. Over the past decade, by the ECB’s account, de facto independence has deteriorated in almost half of the central banks in countries that account for 75 percent of global GDP. The protection a statute offers, on this reading, lasts only as long as the record a bank builds beneath it.
Lagarde placed even the largest institutions inside that condition. When the Chair of the United States Federal Reserve defended the institution’s independence, Lagarde told the room, the capacity to contain political pressure came from public support accumulated over years of independent decisions, support that voices across the political spectrum had reinforced. The matter was not settled, she said, though the mechanism was visible. Where a bank’s credibility is established, the defence of its independence does not fall on the bank alone, but is taken up by those who have come to value it.
Lagarde took the ECB itself as the example. The treaties handed it one of the most protective legal frameworks in the world, she said, and at its birth in 1998 that framework conferred no credibility at all, leaving an untested institution to be judged on its actions. The sovereign debt crisis and then the inflation of 2022 were where the independence written into the treaties became authority exercised in practice, and on her reading the crises, not the statutes, supplied the standing the bank had lacked.
“You have long practised the work that has now become the task of all,” Lagarde said of the central banks represented, many of which had built credibility without a long institutional inheritance to lean on and under shocks in commodities, capital and climate sharper than the older institutions had faced until recently. Operating without the cushion, in her telling, is the experience the rest are now acquiring.
Lagarde addressed the represented banks as a group and named Cambodia once, as the host city. The National Bank of Cambodia hosted the conference with the Banque de France, the central bank that founded the Francophone series in 1994, and Lagarde returned to that bank’s origins at the open and the close, citing Napoleon Bonaparte’s wish for a bank “in the hands of the government enough, but not too much” before he reclaimed the independence he had granted it. Cambodia has hosted three times, after 1996 and 2011, and put the autonomy question in the conference title rather than around it. François Villeroy de Galhau, the Banque de France governor, also delivered a keynote, and Chea Serey, the Cambodian governor, convened the proceedings.
Lagarde set out three conditions for holding independence as the environment hardens. A central bank has to keep its mandate clear and price stability first, defending that order even at immediate cost. It has to communicate directly with citizens, since the anchoring of expectations rests on households being persuaded that commitments once made are kept. And it has to preserve its room for manoeuvre, which depends first on fiscal trajectories that no statute can rescue once they turn unsustainable, and then on a financial system resilient enough that a rate decision is not also a stability decision.
Each condition reads as a question rather than a settled attribute, and the questions do not exempt the bank that asked the room to weigh them. A mandate clear in law has still to hold when the cost of holding it arrives. Communication that anchors expectations is built, in Lagarde’s account, “less by words than by accumulated experience.” The room for manoeuvre widens or narrows on fiscal and financial conditions that sit largely outside the central bank’s own hands.
What the conference offered was less an endorsement of any institution present than a description of the terms on which all of them now work, delivered by the official whose own bank spent a quarter of a century earning the authority its treaties had only promised. The same condition holds for the newest credibility in the room and the oldest, and Lagarde closed on the lesson she drew from two centuries of it: “it takes time to build trust, but only an instant to lose it.”