News This Issue:

• Brash To Serve His Country "In Another Way"
• All Cylinders May Soon Be Firing At The Fed
• Veteran Cypriot Leaves Bank
• Papademos Confirmed
• After Papademos
• Gerashchenko's New Calling
• Arch-Dove To Leave Mpc
• And Then There Were Eight
• Hayami Doesn't Suffer Fools
• After Eddie…

Brash To Serve His Country "In Another Way"
Having adequately left his mark in the central banking arena, Dr Don Brash, now ex-governor of the Reserve Bank of New Zealand, still seems to be worried that he is underachieving. He has chucked in his central banking career to try his hand at politics, abruptly announcing his resignation on 26 April, which took effect immediately. At the age of 61, after 14 years in charge of the central bank, Brash says he is now "seeking to serve New Zealand in another way."

He explained that he had accepted an invitation to seek nomination for the opposition centre-right National Party as a candidate in the approaching general election. A contact at the bank told me that although Brash's resignation had come as a surprise, he saw nothing wrong with that. After all, had Brash made the decision to run for the elections and then carried on as governor for a while longer to ease the transition, "he would have faced an intolerable conflict of interest".

But as it stands, he has already provoked outrage from the finance minister, Michael Cullen, of the left-wing Labour/Alliance coalition government. He accused Brash of a conflict of interest when he predicted after resigning that interest rates would rise next month. Cullen said it was "completely inappropriate" for him to comment on such matters, and that now he is in a political role, he must be "careful to ensure that his actions and his motives are not liable to misinterpretation." In light of this episode, it may be pertinent to point out that Brash was careful to emphasise that his resignation was "not motivated by any tension with the minister of finance or the government".

Although he said that his time at the bank has been "a very great privilege", Brash is searching for fresher pastures. He is said to want to spread his wings and branch out from the field of monetary policy. It is certainly not the money that has attracted him to politics: as governor, Brash was paid $496,500 a year, while he stands to make just $95,100 as a backbencher. But this seems to be no deterrent: Brash has already shown an interest in politics when he stood unsuccessfully for the National Party in 1980 and 1981, before he was appointed governor. Interestingly, Brash is not the first New Zealand central banker to go into public service. Murray Sherwin, whose term as deputy governor expired last November, went on to become chief executive of the Ministry of Agriculture and Forestry.

The central bank was quick to assure the world that it was unfazed by Brash's departure, and that it would be "business as usual". Rod Carr, the deputy governor, said in a bid to calm the markets: "The Reserve Bank remains committed to carry out its statutory functions in the normal way." Law stipulates that he must act as governor for up to 28 days or until someone is appointed as acting governor or governor. Doubtless Carr will relish this opportunity to captain the ship, and many consider him a frontrunner to succeed Brash.

In the meantime, the board of directors will recommend to the Treasurer a suitable candidate for acting governor until a permanent governor is appointed (again, by the Treasurer, on the recommendation of the board). The precise procedure for his selection is confidential, and the board's recommendation to the Treasurer will not be made public; any announcements will come from the Treasurer. The post has been advertised, both within New Zealand and offshore, and the appointment must be made within six months of the Treasurer appointing an acting governor.

All Cylinders May Soon Be Firing At The Fed
The two unmanned seats on the Federal Reserve Board of Governors look like they might finally be catapulted back into action, so that the board could be firing on all seven cylinders before long. The empty seats have been languishing uncomfortably in the background while the board has been working overtime with just five members participating. But it is widely reported that President Bush has now singled out two possible candidates for the board: Princeton economist Ben Bernanke and Federal Reserve official Donald Kohn.

Bush has so far made two appointments to the board, Susan Bies and Mark Olson, who both have banking backgrounds, satisfying the demand for expertise in this area. Presumably Bernanke and Kohn are intended to plug the gap in the board left by Laurence Mayer's departure when his term expired in January, rendering the board short on economists. And these heavyweight economists are eminently eligible to take on the job - should they get it.

Over his 48 years, Bernanke has notched up a gleaming set of academic credentials: he is the chairman of the Princeton economics department and hailed as one of the world's leading academic authorities on monetary policy. He also has a Phd from MIT, a BA from Harvard and has taught at Stanford. Bush went as far as to summon Bernanke to the White House on April 17, indicating that he is a hot favourite for the spot. Bernanke is also part of the elite National Bureau of Economic Research where he is director of the Monetary Economics Program, as well as sitting on an advisory body to the New York Fed. The fact that he is an advocate of inflation-targetting has caused some comment, as the Fed does not have a formal target.

Kohn, who is 59, has a rather different background, very much an insider - he has been at the Fed since 1975 and is one of Greenspan's right hand men. Since last June he has advised the Fed board on monetary policy and helps write many of Greenspan's public statements. Before that he spent 14 years as the director of the Fed's division of monetary affairs. He is well known also internationally - he wrote a quite critical report two years ago on the processes of the Bank of England's Monetary Policy Committee (many of his recommendations have in fact been implemented). Kohn would be the first senior Fed board staff member to be appointed to the board since former Fed governor J. Charles Partee in 1976 and only the third senior staff member ever to join the board directly from the Fed's staff. Should he get the job, he will be facing a drastic pay cut: top staff members like him have their pay capped at $192,000, while members of the board are paid $150,000.

Veteran Cypriot Leaves Bank
Veteran Cypriot central bank governor Afxentis Afxentiou finally renounced his job on 30 April. He cannot be accused of lacking commitment: now 69, he has steered Cyprus's central bank with estimable resolve for a staggering twenty years, since 1982. That constitutes over half the bank's existence, as it was established in 1963, and he will certainly be missed.

Afxentiou is to be replaced by Cyprus's interior minister, Christodoulos Christodoulou, appointed by the president for a term of five years. He is 63 and a former finance minister, who worked his way up the ranks of the civil service after starting his career as a primary school teacher.

Afxentiou's devotion to the bank makes him the second longest-serving living central bank governor, and it came as no surprise that he has finally decided to leave, as speculation has been mounting over the past months. Whether or not he was trying to outdo Maumoon Abdul Gayoom, the governor of the Maldives Monetary Authority, we will never know. Gayoom took charge of the MMA in July 1981, only months before Afxentiou took his position, but Gayoom soldiers on, showing no sign of faltering.

And Then There Were Eight
The old-style council of the Bundesbank has undergone sweeping changes as part of changes bringing the bank in line with the new era of the European single currency. The council has been brutally purged from fifteen members down to eight. The new board has now been finalised as a further four members have been chosen: Franz-Christoph Zeitler (president of the Landeszentralbank in Bavaria), Hans Reckers (president of the Landeszentralbank in Hessen), Hans-Helmut Kotz (president of the Landeszentralbank in Bremen, Niedersachsen and Sachsen-Anhalt) and Edgar Meister (the vocal member of the former council in charge of bank supervision and also chairman of the ECB's Banking Supervision Committee). They are to accompany the fortunate four already nominated to the board, Ernst Welteke (Bundesbank president), Juergen Stark (vice-president, and Germany's top financial negotiator on the European and international stage, in particular at the G7), Hermann Remsperger (Bundesbank chief economist) and Hans Georg Fabritius (a new council member, in charge of payment systems and risk management). These eight are the ones deemed worthy to remain, the other seven from the old council were not quite so lucky.

Ernst Welteke - who will remain the president of the bank - in London recently drew on all his years of experience in answering yet another tedious question on the correct euro/dollar exchange rate. It seems that beneath the tough Teutonic exterior there lies a soft and rather muddled man. "I've seen so many exchange rates in my life I don't know what the right one is!" Now that's what Central Banking calls transparency.