News This Issue:

• Brash Gives Thumbs-Up To New Rbnz Governor
• Spitting Contest In Threadneedle Street
• Greenspan At Jackson Hole
• Sabirin Acquitted
• Spooks From Hungary's Past
• A Gruesome Fate
• One Born Every Minute
• Gramlich Undergoes Treatment
• Splitting Hairs
• The Great Bank Robbery
• Diamonds Aren't For Alweendo
• Belt Tightening
• Dirty Money
• Clean Money

Brash Gives Thumbs-Up To New Rbnz Governor
The hunt is over: the non-executive directors of the Reserve Bank of New Zealand have now settled on a new governor, Dr Alan Bollard. The search commenced after Don Brash's exit from the bank to become finance spokesman for the opposition National Party. The government has given the all clear to Bollard's nomination, and he also has the blessing of his predecessor Brash, who judges him to be "an experienced and competent economist who will handle the role well."

Bollard's nomination is notable for the fact that he is currently a member of the government, and has been secretary to the treasury since 1998. One or two eyebrows have been raised on account of this, but finance minister Michael Cullen vigorously denies that the appointment is in any way partial. Don Brash assured Newsmakers that the system does not allow politicians to meddle, and explained that there is "an internationally unusual level of protection of the appointment process from political interference". He points out that the system is unusual in that although the finance minister makes the appointment, he can only appoint somebody who has been recommended to him as governor by the board of the Reserve Bank: "In my view, this is a very good procedure, and provides a high degree of protection from political interference."

Something of a dark horse, 51-year-old Bollard has elbowed past the likes of current acting governor, Rod Carr, and former deputy governors Peter Nicholl (now governor of the central bank in Bosnia) and Murray Sherwin in fact Brash thinks there were some 40 applicants to the position. He said that the board was "in the fortunate position of having three or four strong candidates for the position, any one of whom would have made an admirable governor".

It has been suggested that Bollard's appointment heralds a significant change in relationships between the central bank and the government, which have in the past hit the headlines for the frosty exchanges between governor and finance minister. Brash confided in me on this matter: "Actually, my own relationship with the minister was not strained when I was governor, though clearly since I have become the opposition finance spokesman our relationship has got a bit more tense!"

However there is no tension in Bollard's relationship with Cullen, who finds Bollard "always a pleasure to work with". Cullen has adequately expressed his approval of the selection: "Although I am obviously very pleased that the board has chosen someone of such high ability, it was with mixed feelings that I accepted their recommendation because it means I will lose Dr Bollard as secretary to the treasury." Cullen has also praised Bollard for the "enormously successful" way in which he changed the culture of the Treasury into a "more open and outward looking organisation".

Although Bollard has not had any previous central banking experience, Brash thinks he has had "a great deal of other relevant experience". Before joining the treasury, Bollard was chairman of the competition regulator, the New Zealand Commerce Commission, from 1994, before which he was director of the New Zealand Institute of Economic Research for seven years. He has also worked as an economist in a variety of positions in Britain and the South Pacific. In sum, Brash fully endorses the appointment: "He has strong economics, strong management skills, and, I understand (though I have not heard him give a public speech) strong communication skills."

But it's not over yet: confirmation of Bollard's appointment is conditional on the satisfactory negotiation of a new Policy Targets Agreement since the government is keen for New Zealand's monetary policy to mimic that of Australia more closely. However Cullen's attitude is sanguine: "I am confident Dr Bollard and I will be able to negotiate a PTA which is satisfactory to each of us and to the broader financial and business community and which will serve New Zealand well." Bollard's take was more measured, perhaps in an attempt to accustom himself to his probable new role: "Until the Policy Targets Agreement is finalised, and my employment contract is signed, it would be inappropriate for me to make any further comment on any matter relating to the Reserve Bank governor position."

Spitting Contest In Threadneedle Street
Meanwhile, the hunt for a suitable successor to David Clementi, the deputy governor of the Bank of England who quits his job today, continues. The Treasury has come under fierce attack from the party in opposition, the Conservatives. Shadow chancellor Michael Howard seized the moment to deride his opposite number Gordon Brown, who is currently holidaying in Cape Cod, attributing "this lamentable failure" to appoint Clementi's successor to "sheer incompetence".

What's up? Many of the Treasury's favourite sons from the City have turned down the job. Some say high fliers are turning their noses up at the paltry pay Clementi got £207,083 last year. But who worth his or her salt would leave a City position to take a job as so-called deputy to an unknown boss? Eddie George retires in less than 12 months and the new deputy certainly could not hope to be promoted to the governorship; even a seat on the MPC might not compensate for the aggravation of being No 2 (or is it No 3?) to a governor you might not get on with.

Another question is whether the Treasury is consulting Eddie George himself, in any more than a very perfunctory sense. After all, he knows more about what qualities are needed in the job than anybody else. And surely the new person has to be acceptable to the governor. The most qualified person would be Ian Plenderleith, who has just retired as an executive director (one previous deputy governor was called back twice and ended up with three pensions!). But the Treasury took their time once before when reappointing Eddie George for a second term and one has the horrible feeling that they are gloating over this demonstration of their powers.

To fill the gap, the Bank can call on the very intelligent Alastair Clark, an executive director, and the obvious internal candidate, to ensure that the deputy's responsibilities as minder of the stability of the financial system remain attended. There is certainly little concern in Threadneedle Street over the MPC meeting next week, which has operated before without nine members, most recently when Marion Bell and Paul Tucker joined the committee this June. In the unlikely event that the vote is tied (the City expects no change in interest rates) the governor gets a second vote.

Although unrelated to central banking, it may be appropriate to recall the rude remark that a US vice-president called John Nance Garner once said of his job: "This office isn't worth a pitcher of warm spit." Everybody knows that there is absolutely no need for two deputy governors and that the Labour government's decision to split the job was a silly mistake. But now it's written into the legislation. Please Gordon, stop spitting!

Clementi looks set to become the next non-executive chairman of Prudential, the UK's second-biggest life assurer.

Greenspan At Jackson Hole
Central bankers from around the world travelled to Jackson Hole, Wyoming for the annual meeting organised by the Federal Reserve Bank of Kansas City on Friday. Alan Greenspan, defending his decision not to prick the asset bubble of the 1990s, told the assembled company that central banks can't deflate stock-market "bubbles" without causing severe economic harm. "Nothing short of a sharp increase in short-term rates that engenders a significant economic retrenchment is sufficient to check a nascent bubble," Greenspan told the gathering. "The notion that a well-timed incremental tightening could have been calibrated to prevent the late-1990s bubble is almost surely an illusion," he said.

Greenspan said the Fed faced at least two problems in dealing with the bubble on Wall Street. First, "it was very difficult to definitively identify a bubble until after the fact - that is, when its bursting confirmed its existence." Second, Greenspan said the Fed's experience over the past 15 years suggested that gradual interest-rate increases tend to generate later increases in stock prices. "For example, stock prices rose following the completion of the more than 300-basis-point rise in the federal-funds rate in the 12 months ending in February 1989," Greenspan said. "And during the year beginning in February 1994, the Federal Reserve raised the federal-funds target 300 basis points. Stock prices initially flattened, but as soon as that round of tightening was completed, they resumed their marked upward advance," he said.

Accordingly, Greenspan said, Fed policymakers had no way to deflate the stock bubble without raising interest rates sharply and risking an economic collapse. "It seems reasonable to generalize from our recent experience that no low-risk, low-cost incremental monetary tightening exists that can reliably deflate a bubble. But is there some policy that can at least limit the size of a bubble and, hence, its destructive fallout? From the evidence to date, the answer appears to be no," Greenspan said.

Spooks From Hungary's Past
The past of chairman of the National Bank of Hungary, Zsigmond Jarai, has returned to haunt him. Since Hungary's new prime minister, Peter Medgyessy, admitted to working for the secret service 20 years ago during the communist regime, a witch hunt has been set in motion to hunt down other ghosts thought laid to rest. The witch hunters have claimed that Jarai was also implicated in similar affairs. He recently owned that the secret service attempted to recruit him in the 1980s, but said that he repudiated the offer and was not a member of the communist party.

But he did not escape participation entirely, and was forced to send back reports when abroad when he was involved in preparing the reopening of the Budapest Stock Exchange in the 1980s. "Under pressure I signed a statement that I will send to the Interior Ministry the reports I wrote on the foreign assessment of the country's economy from my trips abroad, but this activity is acceptable even today," Jarai said. He made these remarks after protesting violently against publication of his personal data. He said that the investigation was unlawful and unconstitutional, and was only designed to divert attention from Medgyessy's screening: "The operation of this committee can be regarded as a political circus which aims to smoothly settle the D-209 [Medgyessy] affair, rather than to be a real unveiling of the past."

A Gruesome Fate
Fresh evidence has surfaced over the murky episode in which the former governor of the National Bank of Ukraine, Vadym Hetman, was brutally shot dead in 1998. Former prime minister Pavlo Lazarenko allegedly commissioned the murder of Hetman considered a level-headed, elder statesmen of Ukrainian politics for $850,000.

Hit man Serhiy Kulyev has recently given evidence to a court describing the sordid details of this infamous incident. He told how his superiors in the Luhansk-Donetsk crime ring assuaged his fears by telling him "not to get too concerned. Pasha [a diminutive] Lazarenko would cover them." He described the scene of the murder: "When he got into the lift [of his apartment], I got down from the stairs and followed him. I put one foot in the lift and started shooting six times. First in the torso area. When he fell to the floor of the lift, I delivered the final shot to the head."

One Born Every Minute
The South African Reserve Bank has succeeded in beating off an impostor website. Bank officials discovered a phoney website registered as http://www.sarb.org.za/ (have a look, the remains are still there) masquerading as their own, acting as a prop to further criminal causes. In another attempt by those nefarious Nigerian "419" (the number of the law banning such activities) advance-fee scamsters to relieve gullible foreigners of their money, this sham website was established to convince victims of their legitimacy and then bamboozle them into handing over their cash of their own free will.

The tactic is to pledge undreamt riches in return for assistance in shifting enormous sums of money out of African countries; some people, amusingly, fall for this ploy. In this latest case, a number of British and US citizens were fleeced of millions of rands in the belief that they were assisting in the illegal removal of large amounts of money from the bank's coffers. Alas, the scamsters were busted, so will no longer be able to continue their noble quest to rid the world of fools.

Diamonds Aren't For Alweendo
Tom Alweendo, the governor of the Bank of Namibia, has been the victim of underhand measures by a cowboy diamond company, which used his name against his wishes to boost its prestige. Eager to be connected with the central banker's good name, in the hope that perhaps it might benefit from his credibility merely by association, Trade Line Namibia decided to add Alweendo to its list of directors even though he had expressly stated he was not willing to be associated with this company, precisely in order to avoid any controversy.

But when the company was recently caught up in legal wrangling, it transpired that Mr Alweendo was listed in court papers as a 10% shareholder of which the central bank governor had been blissfully unaware. The company had had the courtesy to ask him initially, but Alweendo declined the offer: "I said I'll think about it. Then I wrote to them saying I'm not interested in becoming a shareholder in that." However caution was thrown to the wind and Trade Line Namibia clearly decided they might as well add his name anyway. This may yet prove to have been ill-advised.