The degree of autonomy for a central bank is a matter of eternal debate. Normally, monetary issues are decided by the central bank while fiscal policies are the concern of the government. However, the inter-connectivity between monetary and fiscal policies leads to a situation where the central bank has to be in dialogue with the government before formulating policies. The extent of borrowing by the government is one area where central banks don't seem to have any say.

The history of the relationship between the central bank and the government reflects the gradual rise and subsequent decline of the doctrine of laissez-faire. The principle of laissez-faire was that if there was to be a central bank at all, it should be politically independent.

The history of the Bank of England illustrates the growth of this faith. The improvident ministers of the day courted the rich old lady as the lady herself sought for favors. The former were in quest of loans and the latter of advantage at the time of renewal of her charter. From these relationships between the government and the central bank, certain incidents have been picked out to demonstrate an inherent incompetence of the government in the sphere of currency and credit control. This led to the conclusion that central bank should be independent of the government.

The Brussels conference resolution of 1920 was to the effect that "banks, especially banks of issue, should be freed from political pressure and should be conducted solely on the lines of prudence." This concept of political independence of the bank of issue was the central feature of the reconstruction scheme initiated by the League of Nations. The Great depression shattered the myth of keeping the central bank and politics apart. Post-depression years saw an increasing trend towards the government ownership and control of central banks. This trend has been reflected in the central banking statutes relating to ownership of capital, participation in administration, and intervention in monetary policy.

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