Factbox-How independence came to be standard for global central banks

LONDON, Jan 13 (Reuters) - The Trump administration's decision to open a criminal investigation into the head of the Federal Reserve has intensified fears about the independence of the U.S. central bank, the top policymaking body for the world's biggest economy.

President Donald Trump has criticised the Fed and its chair, Jerome Powell, for not lowering interest rates fast enough.

Top officials from other central banks rallied around Powell on Tuesday, saying in a statement that "the independence of central banks is a cornerstone ?of price, financial and economic stability in the interest of the citizens that we serve".

Following is a summary of how independence became key to the way central banks around the world run their ?economies.

FED LED THE WAY

The Federal Reserve was granted operational independence in 1951, after rising inflation exposed the limits of a monetary policy ?designed to depress borrowing costs during World War Two.

While the Fed was a pioneer in many respects, ?it was not until 25 years ?later that it fully shook off political interference in the setting of interest rates.

Pressure exerted by former president Richard Nixon to keep borrowing costs low ahead of his 1972 re-election ?campaign is widely seen as a contributing factor, along with a leap in ?oil prices, to the surge in inflation later in the decade.

HIGH INFLATION - NEW SYSTEM

After suffering the damage wrought by high inflation in the 1970s and early 1980s, governments around the world looked at new ways to run their economies.

Many ?of them removed power over interest rate decisions from politicians and ?put it in the ?hands of officials who were tasked with keeping inflation low.

By the end of the 20th century, 80-90% of the world's central banks had operational independence, according to the Bank of England.

INDEPENDENCE - DOES IT WORK?

Some credit for low inflation over much of ?the last 30 years lies with other factors, such as the emergence of China and other exporting nations whose low-cost goods helped keep a lid on prices.

But academics have repeatedly linked the level and volatility of inflation to the degree of central bank independence across a range of countries, entrenching its position as a main tenet of policymaking in recent decades.

In Britain, uncertainty about inflation fell by a factor of around four after the BoE became independent in 1997 compared with the previous 20 years, the former chief economist of the BoE Andy Haldane said ?in a speech ?in 2020.

CRISIS CHALLENGES

Broad support for independent central banking came under strain during the global financial crisis of 2007-09, which was linked to lapses by central banks and other regulators charged with monitoring risk in the banking system.

Central banks cut interest rates ?to almost zero and added further stimulus in the form of trillions of dollars of bond purchases. The chair of the Fed at the time, Ben Bernanke, was likened to a traitor by Republican presidential contender Rick Perry, who accused him of printing money to play politics.

More recently, Britain's central bank was accused by politicians of fuelling inflation with its own quantitative easing programme. That heat was dialled up by a surge in inflation to 11% as energy prices jumped following Russia's full-scale invasion of Ukraine in early 2022.

Shortly before becoming UK prime minister later that year, Liz Truss said she would review the BoE's remit, ?something she did not have time to do during her brief time in Downing Street. But the BoE's standing in the eyes of the public plunged to historic lows, according to surveys by the central bank.

While Britain flirted only briefly with a return to political interference, governments in other countries ranging from Turkey to India have sought to exert ?influence over their central banks. Japan's prime minister has also historically advocated loose monetary policy.

(Writing by William Schomberg and Andy Bruce; Editing by Catherine Evans)