Today, Conservative Shadow Chancellor George Osborne announced his party’s plans for reforming state economic governance. In a wide-ranging speech, he called for, amongst other changes, a dramatic shake-up of how the Bank of England’s hierarchy, including limiting the Governor to one term, and making Monetary Policy Committee member selection a transparent process.

There are very good arguments for the state to have no say in monetary issues whatsoever. A central bank is a monopoly supplier of fiat money, forcing upon the people (à la Kublai Khan) a financial regime that may, or may not, be in their interests; in particular, a state that is indebted may force the people to accept a monetary regime that devalues money (à la the Weimar Republic), hurting the individual’s interests. However, if one assumes that it should control the supply of money, it is of paramount importance for the process to be an open and fair one, incorporating the best economic minds the world has to offer.

In that respect, the reforms that the Tories propose are a mixed bag. The idea that the state has any right to operate behind a cloak of secrecy, whilst forcing its will upon the people, is an absurd idea, and, hence, Osborne is right to support open MPC selection. However, there is absolutely no reason to limit the Governor to a single non-renewable term, except for political reasons.

Alan Greenspan (who is, incidentally, now an unpaid advisor to the Bank of England) did a fantastic job at the USA’s central bank, the Federal Reserve, over a period of nineteen years. However, had he been limited to a single term, rather than been allowed to be reappointed by three successive Presidents, the United States economy would be in far worse shape than it is today.

In effect, term limits work in the opposite direction, to transparency; they force upon the citizens a sub-premium choice by limiting their options. At least, if we are to be governed by a statist monetary regime, let it be transparent. But, above all, let it maximise its efficacy by not forcing itself to choose an second-rate greenhorn over a first-rate Greenspan. One of the Shadow Chancellor’s proposals is in that vein, but the other, sadly, is not.