ORLANDO, Florida, Aug 27 (Reuters) - There is legitimate

debate about the actual independence of modern-day central

banks, but almost everyone agrees that overt politicization of

monetary policy - as we appear to be seeing in the United States

- is dangerous. Why is that?

Central banks are essentially arms of government, and many

worked in close conjunction with national Treasuries in response

to the Global Financial Crisis and pandemic, so absolute

independence is a bit of a myth.

But what U.S. President Donald Trump is currently doing goes

well beyond that. By threatening to fire Chair Jerome Powell,

actively trying to sack Governor Lisa Cook, and attempting to

fill the Board of Governors with appointees sympathetic to his

calls for lower interest rates, he is shattering the Fed's

veneer of operational independence.

Examples of the naked politicization of monetary policy down

the years show that it can, to put it mildly, deliver

sub-optimal results - loss of credibility, currency weakness,

spiking inflation, rising debt, elevated risk premia, and,

potentially, much higher borrowing costs.

These are certainly far from guaranteed outcomes in the

U.S., but they show where excessive political interference in

monetary policy can lead.

TURKEY

"Erdoganomics", the unorthodox economic theories and policies of

Recep Tayyip Erdogan, who has been President of Turkey since

2014, are a prime example of politicized monetary policy.

Erdogan, an avowed "enemy" of interest rates, is on record as

saying high interest rates cause inflation and that the way to

reduce inflation is therefore to lower borrowing costs.

He fired or replaced five central bank governors between

2019 and 2024, some for hiking interest rates or refusing to cut

them.

With inflation and interest rates hovering around 20% in

late 2021, the central bank succumbed to Erdogan's pressure and

slashed borrowing costs. The result? The currency collapsed and

inflation soared above 85%.

ARGENTINA

Few central banks in the modern era have so clearly been de

facto arms of government as Argentina's Banco Central de la

Republica Argentina. Successive governments have leaned heavily

on the BCRA to print money to fund their spending, with

predictable results. The country has been in and out of economic

crises, and battling high or even hyper-inflation for decades.

The tenure of a BCRA president tends to be short: there have

been 13 BCRA heads this century. And there were seven in the

first seven years of Carlos Menem's Presidency between 1989 and

1996. President Cristina Fernandez de Kirchner also notoriously

fired BCRA chief Martin Redrado in 2010 because he opposed her

plan to use $6.6 billion in FX reserves to pay down debt.

INDIA

Pressure on the Reserve Bank of India has intensified under

the government of Prime Minister Narendra Modi. In December 2018

RBI Governor Urjit Patel resigned abruptly after just over two

years in the job following months of government pressure to ease

lending conditions and allow the government more access to

reserves to boost spending ahead of national elections.

In the months before Patel's departure, Modi also removed

RBI board members and appointed his supporters in their place,

unnerving investors. This helped push the rupee to a then-record

low against the dollar that October, and annual inflation more

than trebled over the following year to nearly 8%.

JAPAN

The situation here is a bit different - given that Japanese

leaders have often been actively seeking a weaker currency and

higher inflation - but the cozy relationship between the

government and the Bank of Japan has still arguably had a

negative impact on the country's long-term economic health.

The Japanese government and central bank have worked almost

as one while completing several FX interventions over the years.

The ties deepened with the roll out of "Abenomics" in 2012, the

economic reforms introduced by Prime Minister Shinzo Abe, that

included the 'three arrows' of fiscal policy, monetary policy,

and structural reform.

At the heart of Abenomics was unprecedentedly loose monetary

policy, even by BOJ standards. The central bank expanded its

balance sheet massively - it's still around six times larger

than the Fed's as a share of GDP - and deployed negative

interest rates for years.

Did it work? Many critics argue not, as growth remained

sluggish, inequality rose, and Japan is now hamstrung by the

world's largest public debt load.

UNITED STATES

Last is, perhaps surprisingly, the U.S. itself. In the early

1970s, President Richard Nixon pressured then-Fed Chair Arthur

Burns to keep monetary policy loose ahead of the 1972 election

even though inflationary pressures were building.

Nixon also reportedly told Burns in 1969, just after he

nominated him, that previous Fed chair Bill Martin was always

six months "too late" doing anything. "I'm counting on you,

Arthur, to keep us out of a recession," adding: "I know there's

the myth of the autonomous Fed..."

Burns served as Fed chair for eight years through 1978,

during which time inflation exploded and didn't fully come down

until the early 1980s. Many observers consider him to be one of

the least successful chairs in the Fed's history.

It barely needs saying that the U.S. is unlike any other

country. Its economy and capital markets dwarf all others, the

dollar is the world's reserve currency, and its rates and bond

markets are the benchmarks for global borrowing costs.

That means that the magnitude of any market or economic

impact from Trump's political interference could very well be

smaller than the ructions of the past. But America's global heft

also means that the worldwide impact of these moves could be

much greater.

(The opinions expressed here are those of the author, a

columnist for Reuters)