Final answer:
Ceding control of currency to a central bank addresses moral hazard by reducing the likelihood of political influence leading to increased and potentially inflationary money supply.
Step-by-step explanation:
The term moral hazard refers to the scenario where providing protection against risk encourages riskier behavior that the protection was meant to guard against. In the context of government and banking, ceding the right to control the amount of currency to an independent central bank addresses the moral hazard that may arise when lawmakers have the power to influence the money supply.
Central banks have the ability to enact monetary policy in a nonpartisan and expedient manner, reflecting necessary economic adjustments without succumbing to political pressures that may lead to an overheated economy and inflation. This insulation from day-to-day politics minimizes the temptation for legislative bodies to increase the money supply for short-term benefits, such as funding pet projects, which in the long term, could potentially cause rampant inflation.