It is a key aspect of modern central banking, and has its roots in the recognition that monetary policy decisions should be based on the best interests of the economy as a whole, rather than being influenced by short-term political considerations.
[1] The concept of central bank independence emerged in the 1920s and was broadly approved by the conclusions of the Brussels International Financial Conference (1920).
[3] The purpose of central bank independence is to enhance the effectiveness of monetary policy and ensure the stability of the financial system.
Formal independence refers to the legal provisions that guarantee the central bank's autonomy, such as its mandate, its organizational structure, and the procedures for appointing its leaders.
This can be either formal or actual, and ranges from complete independence to significant government control, with several intermediate levels in between.