News This Issue:

• Convergent Emoluments For EU Central Banks?
• Ian Takes His Bow
• Another In The Bag
• Greek Governor Chosen
• Noisome Notes
• Central Banker Executed
• Korean Cronyism
• Name Change
• Asian Success
• More Prizes

Convergent Emoluments For EU Central Banks?
The Bank of England's Annual Report, which has just been released, continues to exceed the accepted requirements of transparency by readily making public the salaries of the individual members of the executive board and monetary policy committee. The Bank's governor Sir Edward George gets £249,909 while the deputy governors Clementi and King are runners-up with £208,051 and £207, 400 respectively.

Ian Plenderleith, who is to retire at the end of this month, had a salary amounting to £177,816, while Charlie Bean, the Bank's chief economist, only gets £147,000 - though this isn't such an inconsiderable sum for someone accustomed to the paltry pay academics have to put up with in this country, which was how he passed his time before joining the Bank in 2000. Also, it is more than the external members of the MPC get, on £137,979. But who knows what the monetary value of being able to say you sat on the Bank's MPC is to your future career?

A thumbnail comparison with salaries in other central banks suggests a convergence play. The ECB - which does not openly disclose salaries of individual members in its annual report - paid its executive board, comprising six members, EUR 1.9m (£1.2m) in 2001. That is an average of EUR 316,666 (£200,000) which compares closely to the Bank of England's average executive board pay of around £198,195 (misleadingly accurate as executive director Alastair Clarke's salary is not mentioned in the report). Duisenberg once publicly said that his pay should be in line with his fellow executive board members, and it seems now that the Bank's pay for senior people is roughly in line with the ECB's.

We cannot say the same for Italy however. Again, salaries for individual members of senior staff are not revealed, but the Economist estimated a couple of years ago that Antonio Fazio's salary was around the $600,000 (£410,000) mark - almost five times Alan Greenspan's salary at the time. Unconfirmed reports suggest he might be getting more than $700,000 today (£478,000), almost double what Eddie George is getting.

Elsewhere in the world, the Bank of Japan sets aside 487,532,000 yen (£2.68m) for its executives, which would be on average £297,000 - rather higher than European levels. In contrast, as is well known, the Americans get a comparatively raw deal. Alan Greenspan is paid $166,700 (£113,796) while his fellow board members get $150,000 (£102,396). But presidents of the branches of the Federal Reserve get considerably more: ranging from Robert Parry at the San Francisco Fed with $315,200 (£215,168) to Anthony Santomero at the Philadelphia Fed with just $214,400 (£146, 358). Not for me to explain the reasoning behind all this.

IanTakes His Bow
Ian Plenderleith, Bank of England stalwart, and the man who modernised the UK government bond market, had a merry farewell shindig this week at which all the movers and shakers of the UK banking community were present, as well as a galaxy of central bankers past, present and future, barring, interestingly, those who are mentioned as possible successors to the governor - namely, Mervyn King, Sir Howard Davies and Andrew Crockett.

Eddie George, who had promised Plenderleith there would be no speeches, found himself at the podium saying that he didn't know how they would do without Ian, whilst Plenderleith responded gallantly by declaring that he had learnt everything he knew "at the feet" of Eddie.

By the way, can Newsmakers readers tell us who they think started all this early rumour-mongering about who will be the next governor? My guess is that it can all be traced back to Gus O'Donnell, who is the Treasury's "observer" at MPC meetings and with whom, they say, you lunch with a long spoon.

Another In The Bag
A welcome, please, for new currency board cum central bank being born in the waters north of Australia. East Timor has at last achieved its long sought-after independence, and the country actually found that the central bank was already being set up. A spokesman for the Bank Indonesia made it clear to me that "Bank Indonesia ceased acting as the central bank for the region quite a long time before the inauguration of East Timor Independence".

The new bank faces a tough task. After October 1999, when the Indonesian army pulled out of the territory, many banks' HQs were incinerated and senior staff beat a hasty retreat to Indonesia. According to Fernando DePeralto, who became the general manger of the Central Payments Office (the then de facto monetary authority) in mid-2000, "this resulted in a total cash economy". DePeralto was formerly a deputy governor of the Bank of Jamaica, and has since returned to his homeland, perhaps in exasperation at the Herculean task with which he was confronted.

In early 2000 the United Nations Transnational Administration in East Timor settled on the US dollar as East Timor's official currency. But according to Bank Indonesia, in certain regions, particularly near the border, the rupiah is still being used. The Bank Indonesia spokesman informed me that "we have a MOU between Bank Indonesia and the monetary authority in East Timor dealing with the repatriation of the rupiah to Indonesia".

So the banking system is still under construction. According to the British ambassador in Dili, Hamish Daniel, the Billing and Payments Authority (BPA), which is the downbeat name of the new monetary authority, "is close now to operating as a full monetary authority, with the passage of the BPA Regulation in November 2001." However he cautioned that "a number of challenges remain, including strengthening the BPA which needs to be properly capitalised over time to strengthen its financial autonomy, in line with the ongoing institution-building in which the IMF has a role."

Newsmakers looks forward to getting in touch with the new governing board as soon as they are named.

Greek Governor Chosen
Panagiotis Thomopoulos, who Newsmakers reported in its May 3 issue had volunteered for the job of governor for the Bank of Greece, may have been disappointed to learn that his rival, Nicholas Garganas, got the job. Both deputy governors at the bank, the only two serious candidates for the spot, even the same age at 65, it was a close call.

Garganas, an urbane ex-academic, said after his promotion was announced that he would "make every effort to achieve the goals of the Bank of Greece in the framework of the Eurosystem". The central bank explained that Papademos had recommended to the board that Garganas replace him as governor and that Nick Paleokrassas be appointed to fill Garganas' spot as deputy governor. Equally importantly, the proposal had the backing of the government. In fact, Garganas is on first name terms with Greece's prime minister, Costas Simitis, as he was architect of an economic stabilisation program in 1985-87, which Simitis implemented as economy minister at the time.

Garganas has a string of letters after his name, some of which were gathered at the London School of Economics (MSc) and University College London (PhD). After eight years as research officer at the National Institute of Economic and Social Research in London he joined the Bank of Greece in 1975 as senior economist, and was chief economic adviser to the national economy ministry and a member of the council of economic advisers from 1985 to 1987. He was drafted in as deputy governor in September 1996 in the hope that he would help wrestle down inflation, liked also because he backed Papademos's "hard drachma" policy, both of which ultimately allowed Greece to enter the euro zone. He has been a member of the monetary policy council since February 1998.

Noisome Notes
One or two members of staff at the Bank of England may have blushed at news that the much-heralded new five-pound note was duff. Although the note had been "rigorously tested" before issue, and the Bank's chief cashier Merlyn Lowther said that the new fiver would be "the most secure five pound note we have ever produced", it transpired that there was one detail the printers didn't get right: the confounded serial numbers! Of all the silly... After all, they simply allow you to verify where and when it was printed. For all the state-of-the-art features of the new note, including a foil hologram, metallic thread and what not, making counterfeits virtually impossible to produce, the serial numbers just seemed to vanish into thin air with a touch of leisurely confrication.

However the Bank regained its composure rapidly from this most vexing of incidents, and has the matter in hand, having assured the public that there is no cause for alarm: "As a precautionary measure, we have asked the banks and the Post Office to suspend further issuance of the new £5 note, while we carry out further tests and investigative work into what might have caused the fault and how widespread the problem is." The London Banknote and Monetary Research Centre (LBMRC) believes that the problem lies in the new varnish used to increase the lifespan of the note (currently only a year) which "may interfere with the serial number printing process" as it is applied before the serial number - "these two processes may not be compatible".

In a related incident, according to the LBRMC, a man in Berlin has reportedly been rendered impotent as a result of overexposure to a similar type of varnish specific to the ten euro note. After counting a friend's cash inheritance all in ten euro notes, the poor man complained that he "suffered from headaches, feeling sick and had trouble breathing; he also claims not to be able to perform sexually". The ECB is frantically running tests to check on this, and meanwhile Wolfgang Fritz, the man in question, is in the process of suing the German government - presumably in the hope that they might provide him with free Viagra.

Central Banker Executed
On a more sober note, investigations into a corruption case exposed in 1999 involving nine central bank officials in China have resulted in the execution of one of them. Chen Zhiqing was an official with the state treasury department at a People's Bank of China branch in the impoverished northwest province of Qinghai. He was mixed up in accusations of using tax refunds, fake transfers and false receipts to pocket nearly 15.5m yuan ($1.9m; £1.3m) between 1992 and 1997. Corruption is not suffered lightly in China where it is viewed as compromising the legitimacy of the communist government, and consequently the Supreme People's Court, China's uppermost judicial authority, last month endorsed the decision. Newsmakers hopes this gruesome practice doesn't spread, though no doubt many a finance minister has wished such a fate would befall his central banker.

BÄCKSTRÖM QUITS, BUT WILL GO ON BEING PAID After almost ten years on the job, Swedish central bank governor Urban Bäckström decided last week, "I think that's about enough." He consequently officially declared to the chairman of the Riksbank's general council, Sven Hulterström, his intention to resign at the end of this year.

Hulterström thanked him "for good cooperation and valuable contributions as head of Sveriges Riksbank" and announced that "the work accordingly begins of finding a successor who can fill the post on 1 January 2003". Some who claim to be in the know have suggested that the job may go to Lars Heikensten, currently first deputy governor.

But although this means Bäckström will leave office a full two years before the end of his term, it is not for want of stamina. He explained that by resigning this year instead of seeing his term through to December 2004, he will give his successor time "to manage the issues that may become topical in the coming years" - such as joining the European monetary union, and the consequences of a referendum on this issue. He therefore hoped his decision would provide "the best possible continuity".

Bäckström thanked his colleagues for a "fruitful collaboration" adding tearfully that he would miss them. He subsequently became unreservedly emotional when describing his relationship with those outside the bank who had allowed the Riksbank to "conduct a dialogue" with the people of Sweden - whom he described as "our taskmasters".

As for his own future he said he had "not yet decided" although he would "be 'in quarantine' for up to one year... So there will be plenty of time for me to think about the future." The Riksbank Act states that for one year after members have left the executive board, they may not be employed (without the consent of the general council) in activities where their knowledge might potentially bring them into conflict with the Riksbank, although they continue to receive full remuneration for employment with no official duties.

Korean Cronyism
Meddling in central bank affairs is a time-honoured practice that politicians just can't resist, though many live to regret it. But Park Seung, the new governor of the Bank of Korea, does not seem to find it particularly amusing. And he has said as much to the finance and economy minister, Jeon Yun-churl, albeit in a rather roundabout way. In reaction to the appointment of Lee Kun-kyong, head of the state-invested Korea Technology Credit Guarantee Fund, as a new member of the monetary policy committee to replace Kang Yung-joo, who is now head of the Korea Stock Exchange, the central bank governor had one or two comments to make, amounting to a severe slap on the wrists when translated into plain English.

He reportedly told the finance minister that he would prefer him to approach the issue with a "broad" view, and therefore not to regard it merely as an opportunity to infiltrate the central bank with just another of his sidekicks. Park suggested that such bureaucrats would have a tough time trying to distance themselves from outside pressures. Union members at the central bank even labelled the ministry's decision as "selfish", claiming that the ministry wanted to give the job to one of its senior officials so other officials can be promoted. With this new appointment, half of the monetary policy committee's six seats will comprise former bureaucrats.