The Governor of the Bank of England was speaking at the LSE Trium Anniversary Conference, where he pointed out the central bank is facing criticism that contradicts itself, from both sides of the arguments: financial firms saying regulation has gone too far, while the Bank’s critics say it hasn’t gone far enough to keep the sector in check.

Mr Bailey warned: “Any institution seen to get in the way becomes an unrepresentative elite standing between the people and their will, and thus an obstacle to popular sovereignty. This is a serious challenge.”

The Governor said legitimacy in institutions like courts, universities and central banks rests on democratic delegation across society, not the preferences of any single group, and that maintaining public trust in that arrangement “matters deeply.”

He went on to discuss the challenges facing central banks, explaining that: “Central bank policies affect the distribution of returns, wealth and welfare directly, which pulls economic interests back into the picture. 

“This concern applies more to financial stability policy than to monetary policy, though monetary policy is not immune from it. One version of the criticism is that the central bank remains too close to financial interests.”

He argued the Bank’s usual defence is that the wider benefit of stable money outweighs any uneven effects on different groups, adding: “The irony is that central banks can, and today do, face an opposite accusation from the financial interests themselves, who argue that regulation has gone too far. So, criticism arrives simultaneously from two directions that contradict each other.

“The fact that criticism can come simultaneously from opposing directions does not prove that central banks are correct. On their own, two perceived wrongs don’t make a right. But it does underline that independence often requires making decisions that do not align with the private interests of any constituency or group, and that at times resisting pressure from the concentrated interests…is part of the task of protecting a public good like the value of money.”

The Governor concluded his speech arguing that “sustained economic prosperity depends upon confidence in the future” and that “financial markets must be able to allocate capital efficiently,” adding: “Central bank independence does not mean detachment from democracy. It means insulation from short-term political pressures within a democratic framework. Its legitimacy derives from a parliamentary delegation and accountability goes with that independence. It is the basis on which independence legitimately rests.”

He said the task now is to strengthen that foundation through accountability, transparency and public engagement, rather than let it weaken.