Op-Ed That lesson plays out vividly in the Spanish series Money Heist. In its finale, a crew returns Spain’s stolen gold to the central bank – but it’s fake. Nobody outside the crew knows, and markets accept it, halting the country’s spiral into bankruptcy.
It’s an illusion, yet it works, and that’s exactly the point – perception can be as powerful as reality.
The same idea applies in real-world finance with central banks very much operating on this principle.
Namely, the Fed in the US and the RBA in Australia rely on trust. If markets believe these institutions are independent and competent, their policy decisions carry weight. But undermine that trust, and even technically sound moves can fail to have the intended effect.
That principle is currently being tested in Washington.
Trump’s push to reshape the Fed may have hit a legal snag – with a judge blocking his attempt to remove Governor Lisa Cook and clearing her to vote at next week’s pivotal FOMC meeting – but the damage to the Fed’s image was already done.
The institution no longer looks untouchable, and its shine dims a little more with each step Trump takes to stack the board. The fast-tracking of Stephen Miran, a Trump-aligned nominee, through the Senate is a case in point. If confirmed, he would sit alongside Christopher Waller and Michelle Bowman, both already sympathetic to Trump’s dovish stance. That (and if he is successful in ousting Cook) would give the President sway over four of the seven governors – a critical foothold in what was meant to be the country’s most insulated policy body.
And it goes further.
The Fed’s structure allows governors to affect the rotation of regional Fed presidents onto the FOMC, which could gradually tilt the committee toward a more dovish stance over time.
To understand the stakes, it helps to recall why the Fed was built this way in the first place.
Back in 1935, Congress overhauled the Federal Reserve through the Banking Act, giving governors staggered 14-year terms and protecting them from removal except “for cause”.
The aim was clear: to insulate monetary policy from the whims of the White House and Congress.
Decades later, the runaway inflation of the 1970s – and the perception that political pressure on Fed Chair Arthur Burns had made it worse – cemented the consensus that only an independent central bank can keep prices stable.
So, the implications are real. Even without immediate policy changes, the possibility of a politicised Fed can push inflation expectations higher, weaken the dollar, and raise yields on long-term US government bonds.
Foreign investors, who underpin much of US debt demand, may adjust their expectations, with knock-on effects for equities, gold, and other real assets.
Economist Shane Oliver framed the stakes well: “If the Fed is increasingly seen as being in the pocket of Trump, as it was with Arthur Burns in terms of Nixon, then the market will lose confidence in the inflation controlling credentials of the Fed and inflation expectations will start to rise.”
A good mix of hawks and doves is essential, Oliver believes. That’s why the debate over Labor’s RBA reforms mattered. As is happening in the US now, last year debates raged over whether the government was stacking the RBA board and eroding its independence.
The risk isn’t always immediate, it creeps in over time. Namely, while markets might trust the Fed or the RBA today, if the impression of impartiality starts to fade, confidence slips. And when that happens, inflation expectations edge higher, bond yields climb, and borrowing costs follow.
This fragility isn’t just theoretical. Gold and bitcoin illustrate the same principle in a more direct way.
Neither produces income, yet both have value because people agree they do. Perception can keep something afloat even when reality starts to crumble.
“There is an element of that perception and if you break that in some way, it's just like most people trust the Fed or the RBA to get inflation back down,” Oliver said.
“If you do something which breaks that perception, then you have trouble.”
The takeaway is simple: when trust is intact, central banks can steer economies. When it falters, even the best policy loses its punch. Markets may shrug today, but over time, the illusion of independent, competent central banks is what really matters.
And once confidence erodes, inflation expectations drift higher, borrowing costs rise, and economic stability weakens. Like the gold bars in Money Heist, credibility only works if everyone believes it’s real.
