There is not a single definition of independence because there is no one indicator that takes into account all aspects a nation or person’s independence without connections to a nation’s government or apart from governmental influence. Even so, the term “independence” is widely used, with growing consensus about three areas in which government influence must be either totally eliminated or dramatically reduced:
- Independence in the realm of the personal
- Independence in the realm of financial independence
- Independence in the realm of policy
Personal independence refers to the amount of direct influence elected officials have on the appointment of local policy and personal freedoms. Characteristics such as longer terms of office are associated with greater autonomy, as are relationships in which elected officials have less authority to appoint successors.
Financial independence refers to the ability of a government to finance its expenditures directly or indirectly through its own means. When governments have direct access to credits, the bank’s monetary policies are not independent of national fiscal policy; when the central bank serves as cashier or manages governmental debt, it also cannot be characterized as independent.
Policy independence refers to the latitude allowed government or local governments in the formulation and execution of monetary policy. Such latitude must include not only the bank’s ability to autonomously set fiscal goals and objectives, but also its freedom to select policy instruments. In the recent past, the notion of independence has become most closely associated with its autonomous use of one particular instrument to achieve one specific political objective, such as control of a national rate of inflation.