Introduction This paper contextualizes central bank independence (CBI), a “golden practice” of monetary policy (MP) governance enshrined in domestic legislations that limit and prevent untrue institutional political intervention in developing countries by drawing a case from Indonesia’s experience. In the aftermath of the global financial crisis (GFC), CBI principles, along with its most fundamental objective to maintain a low rate of inflation (price stability), have faced multiple challenges that questioned, among others, its legitimacy. This paper opted to focus on this aspect.
CBI legitimacy (hereinafter used interchangeably with CB legitimacy) discusses the political acceptance of CB as an independent state institution that exclusively manages MP. The concept of
legitimacy was built on the political system theory advocated by Easton and completed its element
and contextualized in MP governance by Schmidt.i

Literature Review As abundant attention has been dedicated to exploring the significance of CB actions after the GFC in the advanced economic countries to the political acceptance of CBI, little has been known in developing countries context.ii Some works have indicated the role of politician’s (politics) actions in developing countries that may hinder the effectiveness of independent MP governance that guided by CBI framework.iii These political hindrances may appear in multiple forms.iv Therefore, these literature need to be accompanied by an explanation on why the politicians act in such manner and how a CB can response to that rejection. CB legitimacy perspective is argued to meet this need.

Methodology This paper is non-doctrinal research that uses historical institutionalism, which also intersects with law and economics (cost-benefit analysis of law).

Data and Limitation This paper limits the analysis of CBI legitimacy discourse since the establishment of Bank Indonesia, the monetary authority in Indonesia, in 1953. All laws and the amendments legislated after that year will be analyzed to trace the earliest and most updated form of indications of CBI (principles) unacceptance.v This paper does not suggest the correct form of legitimate CBI framework but to advocate the utilization of using legitimacy point of view.

Conclusion This paper aims to introduce the use of the CB legitimacy perspective in the studies of independent MP governance in developing countries.