14 July 2003

NEWSMAKERS

 

A Twenty-First Century BIS
73 years on and the world's oldest international financial organisation with it, the BIS is alive and well. As usual, a swarm of central bank governors great and small descended on Basel to participate in the BIS annual meetings. This diversity of attendance highlights the BIS's remarkable ability to adapt to the times, having metamorphosed into a very different creature to which it was originally conceived. Straying considerably from its origins as a bank established to handle Germany's reparation payments after the First World War, Malcolm Knight, the new general manager, insists, "The fundamental role of the BIS is to foster cooperation among central bankers and regulators all over the world."

Knight was keen to emphasise to Newsmakers his desire to continue the good work of his predecessor Andrew Crockett in engendering a truly global community of central bankers: "I really think of myself as someone who is very dedicated to the principle of international cooperation. I think I understand it, and I think this is a very effective place to do it, I think the BIS is in the right place geographically to perform that function in a really efficient way. But to me what is really important is the fostering of international cooperation."

To show that this is not just talk, the BIS has announced that it is continuing to widen its membership by inviting a further six emerging market central banks to join (Crockett set the ball rolling by adding thirteen to the then thirty-something strong membership of this essentially European institution): Algeria, Chile, Indonesia, Israel, New Zealand and the Philippines. The governor of one of those central banks commented to Newsmakers that the BIS was in a sense really only formalising what was already a reality.

Knight is keen to shelve those outmoded perceptions of the BIS as some musty and inward-looking European clique, and is committed to broadening the BIS's horizons: "Ten years ago the BIS was an institution that was very much focused on Europe. Now the BIS is an institution that is in Europe, and for that reason can really contribute to international cooperation between the central bankers in Western Europe and Eastern Europe, between central bankers in Europe and those in the Western hemisphere and other regions and that is something we really want to foster. It's a well-established cooperation but it is something that needs to continue."

One monumental task looming over Knight is the implementation of the new version of the Basel capital accord. But although he believes it to be a "major step forward", it is by no means the end of the road: "I do think that the system and these proposals will evolve over time as supervisory employees gain more experience." But for the moment, the immediate task ahead is what is of primary concern: "I don't know whether we should talk about Basel III, Basel IV or Basel V - and I'm sure the people that did all that hard work on Basel II and want to get it implemented probably have no idea about Basel III, IV or V."

Another critical move that Knight has taken to show that he really means business is in discarding some of the more arcane idiosyncrasies still practiced at the BIS, such as the use of the gold franc in its accounting statements: "We preach transparency all over the world and we have to live by what we preach. That's why the much more transparent financial statements that we'll have now are going to stand us in good stead." By improving the BIS's transparency it is Knight's hope that this in itself will help to keep the institution in touch with its direction by promoting understanding of this traditionally secretive institution: "A little bit of constructive criticism would be useful. That's what transparency is about." The BIS has moved into the twenty-first century in all the best traditions of Darwinianism.

(See the complete interview with Malcolm Knight in the forthcoming August issue of Central Banking journal - http://www.centralbanking.co.uk/publications/journals/cbj.htm)

King Assumes His Throne
The long-awaited moment has arrived: Mervyn King has moved into Eddie George's offices on Threadneedle Street, now that he has been baptised as governor of the Bank of England. In his debut media appearance as governor, he accepted an interview with The Times in which he betrayed some trepidation at having to replace this "remarkable figure". He modestly protested that Eddie's shoes are one or two sizes larger than his own - but, providentially, help is at hand. With a little help from his two redoubtable deputies, things should be okay: "I don't think I can fill [Eddie's shoes] myself. But I think the three of us, Rachel Lomax, Andrew Large, and myself can try between us to fill the shoes of Eddie."

Anyone would feel the same. After all, as King shrewdly observes, "I am not Eddie George. I don't expect to have the same image that he has." But he seems to have a capital plan to sidestep his uncomfortable predicament. Just dispense with this troublesome notion of having a personal image at all: "I've always said that the success of the MPC will come when people find our decisions boring and that they come to anticipate them... If we can go one step further to make it genuinely boring then I hope I won't have a public image in that sense. If there is an image, it will be as a group of people who go around the country and have professional competence - who only do one thing and do it pretty well."

Dogfighting Over The ECB
Further to Newsmakers' plea for politicians put a stop to their unwanted trespassing on territory best left occupied by central bankers, in particular with regard to appointments to the executive board of the ECB, Newsmakers has been notified that it is far from being alone in its concerns. The European League for Economic Cooperation (ELEC) has issued a resolution displaying just the same unease that appointments to the ECB executive board could degenerate into a more or less perpetual political dogfight; and a solution has been suggested.

In a statement issued in early June, it observed that from now on there are likely to be decisions at a more or less annual pace, and that they must be based on qualification, not on nationality. Furthermore, it states that "it is imperative, for the smooth functioning of the ECB and for the credibility of the euro, that the European political authorities be able to discharge in an efficient manner" its responsibilities of appointing ECB board members (and here it notes that this was not the case with the appointments of Wim Duisenberg and Sirkka Hämälaïnen).

To resolve these problems, it advocates that we dispose of the cumbersome requirement for unanimous approval of candidates. This after all makes it far too easy for one self-interested and truculent party to upset the proceedings which would otherwise pass unhindered. Instead, the ELEC suggests (or rather, "urges") that the decisions over these appointments be made by the European Council "by qualified majority of the members having adopted the euro, after receiving the assent of the European Parliament".

If this is what it takes to set things to rights, then it has Newsmakers' whole-hearted consent. One senior insider at the ECB expressed approval to Newsmakers of such an idea and could envisage such a scheme being implemented, accepting that the current set up did create difficulties. However it was observed that it might be easier to accept such a scheme for board members than the president as well. Whatever the case, something does need to be done, the sooner the better, for the ECB's - and Europe's - sake.

(See here to read the ELEC resolution in full: http://www.elec.easynet.be/B5resMon_E.htm)

Stand-Off In Bulgaria
Another good reason for sorting out this mess would be to set an example to other countries as to how these things should be done, which it certainly isn't doing at the moment. If troubled central banks can't refer to such a pivotal central bank as the ECB as to how to conduct their affairs, who can they look to? Bulgaria is going through a particularly painful process over the appointment of a new central bank governor, which has been dragging on for weeks now. When Newsmakers asked Professor Steve Hanke, who set up Bulgaria's currency board system in 1997 and is intimately acquainted with the situation, he disapprovingly described "the flap over the appointment of a new governor" as "a very good example of how even the most simple things in Bulgaria can become politicised."

The prime minister has insisted that the protracted discussions over who is to be governor are will have no negative effects for the central bank, and has most recently excused himself for the fiasco (it was his party that requested a delay of the elections in the first place on June 10) by arguing that discussions were needed over the issue. Different parties have aligned themselves with the two different candidates (there had been the possibility of a third candidate being introduced into play, but mercifully this idea has been dropped) on the basis of what the policies of the two candidates are, particularly over their strategies for the euro, when Bulgaria joins the EU in 2007.

The candidates are the government's man Ivan Iskrov, chairman of the parliamentary commission on budget, and current governor Svetoslav Gavriiski, who has the support of the right-wing opposition. Iskrov was said to have "gained a lead" over Gavriiski when the party which had been going to propose a third candidate decided to back Iskrov instead. The opposition party has withdrawn from the consultation process in a huff saying that there was no point in taking them further as it is apparently not proper to mix talks over the election of a new governor with discussions over Bulgaria's financial stability - at the same time assuring that they would continue to support Gavriiski, although this "can hardly make a difference any more" since the ruling party is backing Iskrov. Just to confuse matters even further, a full month after Gavriiski's term ended, the socialist party has now also withdrawn from negotiations over the next governor over some minor quibble. Please let's get it over and done with!

A Lean Machine
While in some cases the larger central banks ought to be setting a good example for others to follow, it can work the other way around too. Certain Eurosystem central banks might be dripping with envy out at what the central bank in Ghana has managed to achieve, unlike them. Some of the more bloated ones - which to their credit, such as the Banque de France, are mostly attempting to remedy their obesity - would love to be able casually to shave off 1,000 workers as has just happened in Ghana.

The central bank there has just got itself a brand new, million-dollar note sorting machine which will do the work of 500 people, and ten times as quickly. With 2,600 workers, the bank is one of the most highly staffed on the continent relative to its population, and wants to become "a lean, more focused and responsive central bank" - although it promises to go about this in "a humane manner" by offering "generous and attractive early retirement package for staff that may wish to retire voluntarily". To be sure, there has been some discontent among workers and unions at this rather abrupt measure, but probably not to the same extent as in France where workers have delighted in taking to the streets on what is becoming an all-too-regular basis, even though the proposals for change are substantially less radical. In some respects European central bankers don't have it so easy.
Funny Money
After Hungary's recent spot of bother with its exchange rate - and subsequent accusations that the central bank was at fault - Newsmakers is delighted to report that the central bank's communication strategy is most certainly focused - er, on the money. Newsmakers is reliably informed that if you call up Hungary's central bank, and are lucky enough to be put on hold (a stroke of fortune which, alas, Newsmakers has cruelly been denied), you may hear that celebrated song by Swedish supergroup Abba, "Money, Money, Money". A natural favourite for central bankers, of course. Only the irony can hardly go unnoticed. For those readers unfortunate enough not to be familiar with this classic, Newsmakers takes pleasure in reproducing the chorus here:

"Money, money, money, must be funny, in a rich man's world. Money, money, money, always sunny, it's a rich man's world. Aha-ahaaa - all the things I could do, if I had a little money, it's a rich man's world."

Newsmakers asks: is this a veiled cry for help? A plaintive plea for a return to the old days of rather looser money? Perhaps the prospect of ERM II is just too much? To hazard a guess, Hungary is sadly not a part of this "rich man's world", now that it is restrained by a monetary straitjacket forcing it to keep its currency within a mere 2.25% of a central rate, as well as facing heavy-duty fiscal reform to pull its deficit in line with the stringent Maastricht criteria. Well, on the bright side, at least their answering machine is not playing "Waterloo"...

(For the uninitiated: http://www.codehot.co.uk/lyrics/abcd/abba/waterloo.htm)
 
 
 
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