Central banks have been key actors in the transition of postcommunist states to market economies. As one looks back at the structural transformation of the politics and economics of the region, there are important questions to be answered: Why did postcommunist states import the central banking model of Western nations that emphasized independence from political actors and a focus on the stability of prices? How did this model fare when confronted with the realities of economic transition, lack of deep support for the central banks’ mission, scapegoating, and a resurgent pushback from a political class that did not appreciate de facto constraints on their behavior?

Juliet Johnson develops a broad theory about the role of transnational influences on domestic institutional reforms and consolidation, and the theory is made plausible by extensive quantitative and qualitative evidence. This makes Priests of Prosperity a substantively significant and exciting contribution to the field of comparative political economy and to the understanding of postcommunist societies’ transformation. Johnson’s work explains thoroughly the change in the practice of central banking in the postcommunist world, from legal central bank reforms to the transformation of central bank staffers into proper professionals according to global norms and understandings of monetary policy, and to the actual, de facto, implementation of the central bank law. Johnson’s evidence comes from extensive interviews with central bankers, technical assistance providers, policymakers, and commercial bankers, as well as in-depth exploration of five countries that exemplify the range of cases across the postcommunist world: Hungary, the Czech Republic, Slovakia, Russia, and Kyrgyzstan.

In writing her book, Johnson reviews the extant explanations for why politicians adopted the Western models for central banking, based on the mechanisms of learning, competition, coercion, and socialization. However, she suggests that this past literature is flawed, not only because of an almost exclusive focus on the initial adoption but also because it mostly settles for a passive diffusion model. Thus, Johnson argues that socialization and coercion are important at all stages of transplantation (initial choice of central bank law, transformation of national central banks, and law implementation). In addition, she makes the case for an active transmission of practices, knowledge, and legitimacy from key international actors (major central banks, the International Monetary Fund, the European Union), rather than passive diffusion. That is, in postcommunist countries, these international actors did not wait for the Western central banking model to endogenously take root, but rather actively contributed to its adoption through training and socialization of the staff and by taking the side of emergent central bankers in open disputes with the politicians.

When the choice of central bank law is discussed, there is a careful distinction between the decision to conform to the Western model and the degree of conformity. Authoritarian regimes (Azerbaijan, Turkmenistan, Tajikistan, Uzbekistan, Belarus, and Serbia) saw a more limited transformation of their central banks, although even in these countries there was some variation. On the other hand, in more democratic states (Hungary, the Czech Republic, Russia, and Kyrgyzstan in the early 1990s), reform of the central bank was generally close to the Western model, although again, the degree of conformity varied from negotiation among political parties and experts/consultants (Hungary) to blind replication (Kyrgyzstan). In the active transformation phase, international actors gave significant assistance to the newly independent postcommunist central banks in countries that allowed them access. The topics of assistance varied from monetary operations and research to payment systems and public debt management. The international actors that were involved also varied from the IMF and the Joint Vienna Institute to the Bank of England and the Bundesbank. The degree of transformation of some of the central bankers that were surveyed for the book (in Hungary, the Czech Republic, Kyrgyzstan) is significant: The median respondents in these countries “strongly agree” with the mantra of the Western model that central banks should be independent from the executive; “agree” even with the less well documented statement that these independent central banks contribute to economic growth; and “disagree” that central banks should be allowed to give loans to the government.

The implementation of central bank legislation and de facto conformity to the Western model varies most dramatically. This is the reason why Johnson treats it separately in two chapters, for countries that had the incentive to join the EU and countries that remained solidly in the Russian sphere of influence. Thus in Hungary, the Czech Republic, and Slovakia, while politicians did make important attempts to change the law of the central bank outright, they were unsuccessful due both to the lure of EU membership and to direct IMF intervention. In these countries, the central banks also maintained high interest-rate policies in the face of outright demands by politicians for a more relaxed monetary policy. In Russia, on the other hand, Vladimir Putin was successful in curbing the independence of the Bank of Russia; and under President Kurmanbek Bakiyev, the Kyrgyzstani central bank lost its de facto independence and its governor was fired and arrested.

All in all, Johnson is skeptical that the impressive central-bank legal reforms that made many postcommunist central banks more independent than the celebrated German Bundesbank had a real shot at working well on average. This is because the internalization of the Western model of central banking faced formidable challenges of incomplete and uneven political democratization, shallow support from politicians and the public, and, finally, the difficulty of economic liberalization and the accompanying crises that undermined the legitimacy of the model.

The book is clear and persuasive because of a combination of a carefully developed theory, a deep understanding of postcommunist countries, and a combination of qualitative and quantitative evidence. Still, some statements and conclusions appear to be too broad. For example, I find some strong language on central bank law adoption (p. 40): “Making the initial choice to create independent central banks required little effort. Only the heads of state and legislatures needed to be convinced to pass the requisite laws.” This stands in contrast to the fact that Johnson goes on to discuss the choice of law adoption both in terms of a dichotomous decision and also with regards to higher or lower level of legislated central banks. There are also some general statements on why implementation of central bank law may have failed (p. x): “[Z]ealous central bankers at times refuse to cooperate with their governments and finance ministries to such an extent that monetary and fiscal policies pulled strongly in the opposite directions, often to the detriment of economic stability and, ultimately, central bank independence, itself.” Some examples of this behavior may be Hungary in the early 1990s or Slovakia in 1997. However, it is unclear what kind of cooperation Johnson envisioned that would have worked. In the case of Slovakia, it appears that “uncooperative behavior” was the tightening of monetary policy in response to the fiscal deficit. The book, however, does not convey in detail whether the behavior of the central banks was the root problem of instability or instability was driven by fiscal deficits, whether deficits were procyclical, and how a low interest-rate policy or more lending to the government would have helped.

To sum up, Priests of Prosperity is a well written and innovative inquiry into institutional reform in postcommunist countries and how these institutions—the central banks—turn out to work in practice. While there is significant research on central bank reforms and their consequences for rich democracies, much less is known about the role and effectiveness of these institutions in new democracies and autocratic countries. To some degree, the state-of-the-art answer is that central banks do not work in nondemocracies. In the past decade, much progress has been made in understanding the constraining role of institutions in authoritarian countries and new democracies. In these countries, central bank laws have been reformed to international best standards. Johnson’s book lays a good foundation for future work aiming to understand the degree to which these legal reforms in authoritarian countries and new democracies can lead to de facto powerful, autonomous central bankers truly in charge of domestic monetary policy.