NEWSMAKERS
Hooray
For Trichet!
So the Paris courts have once and for all cleared Banque de France governor
Jean-Claude Trichet and his predecessor Jacques de Larosiere from the
unfounded allegations that had been made about their role in the Credit
Lyonnais affair more than 10 years ago. A rather sheepish Yves Bot, the
public prosecutor, has had the decency to accept that there was no point
in pursuing the case any further by lodging an appeal against the court's
ruling: "Everything has been said - we must move on now." With the dignity
that he has shown throughout these awful proceedings, Trichet allowed
himself to say, "I'm moved." "I am very happy for the Bank of France.
I am happy for Jacques de Larosière. I am happy for the Banking Commission.
I am happy for Jean-Pascal Beaufret and my former collaborators at the
Ministry of Finance ", he stated. Tediously, EU heads of state have put
off the final approval of his elevation as Duisenberg's successor at the
ECB until their next summit in October, but there can surely be no ridiculous
haggling at this stage. Any repeat of the undignified political infighting
that marked Duisenberg's appointment would strike another blow at the
ECB's credibility. Duisenberg, who originally planned to retire in July,
will valiantly carry on until the heads of state have made their decision.
There is some uncertainty about how long Trichet will serve for, but most
expect him to be granted a four year term. But what will happen after
that? Germany will certainly claim the position for one of its nationals,
now that President Chirac has made such a stand on the issue of nationality.
But Otmar Issing, currently in the middle of an eight-year term on the
Governing Board, is already 64, four years older than Trichet, and there
is a lack of other suitably qualified German candidates. Newsmakers hears
that the favourite to succeed Trichet as governor of the Banque de France
is Christian Noyer, who made a very good impression as the soft-spoken
vice-president of the ECB for a four year term from 1998 to 2002, being
succeeded by the equally competent Lucas Papademos, who is serving eight
years.
The Eddie
And Gordon Show
Praise was liberally showered on Sir Edward George at his City swansong,
the annual Lord Mayor's banquet for the square mile's great and good -
Eddie's 27th in a row. Gordon Brown, Chancellor of the Exchequer, praised
his integrity, steadfastness and exemplary leadership during his service
of 41 years, which culminated as the first governor of the newly independent
central bank. Eddie was a man whose "dedication and integrity gives public
service a good name."
The outgoing governor reciprocated by thanking the chancellor for his
first, and "inspired", decision to give the Bank independence, a decision
that had "served us well". Over the last ten years inflation has been
on target at 2.5% and growth has been above trend at a quarterly average
of 2.9% - in both respects a remarkable improvement on Britain's previous
dismal performance. But he also paid tribute to Sir Kenneth Clarke, the
Conservative chancellor who had picked up the pieces after the debacle
of Black Wednesday in 1992 and was the first to give the Bank an inflation
target and thus set the stage for it to achieve operational independence
in 1997.
It was no surprise that Eddie should back the government's "no" to the
euro for now, saying, "I agree with your assessment that the economic
case for euro-entry has not yet been made."
Eddie's runaway success at the Bank was however tinged with the faintest
of regrets. The Bank's exemplary inflation-targeting performance meant
he had not been required to write an open letter to the chancellor explaining
why he had not met the target. He decided to take the opportunity to practice
the lost art of letter-writing, just for fun, and Newsmakers has got hold
of it. It reads:
Dear Gordon,
Thank you.
Warmest regards,
Eddie
Click here to see Gordon's most recent letter to Eddie - all very matey:
http://www.bankofengland.co.uk/mpc/chancellorletter030609.pdf
A central banker's lot doesn't really get much less appealing than that of Faleh Salman, the man now shouldered with the responsibility of running Iraq's sickly central bank. To avert total meltdown of what little remains of the Iraqi financial system, Salman has been forced to take to the streets in an attempt to reassure the crowds besieging the makeshift central bank (the original building has been reduced to rubble) that their money is actually worth what it says it is worth.
Dubious notes would be replaced for their full value just as soon as they had printed and distributed acceptable new notes, he told them. But to the acute embarrassment of the Americans in charge, he has had to print millions (he would not reveal exactly how many: "It is my secret") of new 250-dinar notes, which bear Saddam's almost cheekily smiling countenance - despite the American injunction that all such graven images be obliterated. Salman told Reuters, "It was not possible to change the banknotes for the time being. There is no national authority in Iraq at the moment to change the design of the banknotes."
Irate Iraqis were demanding that their 10,000 dinar notes (which many received as pay from the British and American forces) be replaced as they fear that these notes, printed by Saddam in his twilight months, will be declared worthless because too many were looted after the war, and they are also too easily counterfeited. Salman lays the blame on self-interested scaremongers: "People are trying to make a profit by saying the notes will become worthless, then buying them for less than face value." Moneychangers are buying them for 70% of face value. According to Reuters, some Iraqis have been hoarding the so-called "Swiss dinar", pre-1991 currency that does not carry Saddam's face, believing it will be revived. The old and tattered notes are still in use in the north of the country, where Kurds ran an autonomous enclave after the 1991 Gulf War. The "Swiss dinars", which got their name because they were printed in Europe and are considered harder to counterfeit, are worth far more than the Saddam dinars. They reached a high of 3.8 to the dollar this month, while it takes more than 1,000 Saddam dinars to buy a dollar. Salman, who joined the bank 40 years ago, has the task of resurrecting the Iraqi economy from the crudest offices imaginable, with little more than a few telephones to help kick start the basically non-existent banking system.
Then there is Iraq's walloping external debt. Salman says, "We have our own figures, but we must sit with our creditors to come to an understanding... We are ready to talk." What they do have however are their reserves, says Salman: "I will not give you precise figures. There are millions in foreign currency in our vaults and we have recovered all our gold reserves, it is all there." As for the $1bn supposedly lifted from the bank by Saddam's son, Salman says, "Ask the Americans about that."
If good news seems a little thin on the ground for Iraq's central bankers, then at least take heart that following the draining of the flooded central bank vaults, the famed Treasure of Nimrud, a priceless hoard of gold jewellery and ornaments from the ancient kingdom of Assyria, have been recovered intact. According to Salman, "They were never lost. We knew all along that they were there. It just took a bit of time to get at them because of the flooding."
Balcerowicz
Survives
Embattled central bankers in Poland triumphed after a skirmish with finance
minister Kolodko, who has now resigned after failing to sandbag the central
bank into shelling out a further 5bn zlotys (having already parted with
9bn zlotys) from its revaluation reserve to line the 2004 budget. The
central bank's governor, Leszek Balcerowicz, refused to buckle under pressure,
arguing that it would be unconstitutional. Dariusz Rosati, member of the
Monetary Policy Council, remarked, "If the future of public finances were
to be built through a one-time printing of money, then I see its future
in dark colours." Unusually, the central bank won the support of the prime
minister, leaving Kolodko outmanoeuvred.
Kolodko's replacement, Andrzej Raczko, seems a touch more in tune with
current thinking on central bank independence: "as an economist I am well
aware that this is a very important basis for the market economy." But
he also spoke of the need for "a very tough dialogue with the central
bank" to help pave the way for entry into the Eurosystem. The central
bank may have to brace itself for a few more trials yet before it reaches
the promised land of the euro.
In a peculiar case of slighted honour, an executive director at the Reserve Bank of India resigned when the central bank followed in the Bank of England's footsteps by appointing its first female deputy governor last week. K.L. Khetarpal apparently refused to report to his former equal, K.J. Udeshi, and resigned hours after her elevation to governor status. He would not to explain his resignation, saying, "I have nothing to comment... I don't want to say anything against the institution after serving for so many years."
In India it seems to be widely assumed that he could not stomach having to take orders from someone who was technically three months his junior. But it is thought that he did not always to see eye to eye with the governor, Dr Bimal Jalan.
Born in 1943, Mrs Udeshi is a post graduate in economics, joining the Reserve Bank in 1965. She rose from the ranks and was appointed as executive director in 2001. She has had a long stint in exchange control and the Reserve Bank's internal administration and human resources departments.
Newsmakers points out that the RBI seems to be one of the more progressive central banks when it comes to making senior female appointments. Mrs Usha Thorat, who is well known internationally for her work as head of reserves management, has recently been promoted executive director responsible for internal debt management and other matters.
Incidentally, there is a rumour going around that the governor himself is considering quitting in order to become a member of India's parliament (he first became governor in 1997 after a career largely in the finance ministry and was re-appointed for a term of only two years from November 2002). This rumour has not been substantiated, but speculation is already rife as to who will follow him, with many conjecturing that former deputy governor and monetary policy expert Y.V. Reddy (currently the IMF's executive director for Bangladesh, Sri Lanka, Bhutan, India and Sri Lanka) might take his place.
Nigeria's central bank became the object of a bit of jiggery pokery recently when local media wrongly reported that the governor, Joseph Sanusi, had resigned. Newsmakers went to investigate, but could not locate the sources that had originated these "wicked and mischievous rumours". We learn that, short of going insane, there are few reasons stipulated in bank law as to why a governor would have to leave the bank before the end of his term. A spokesman says: "The story is an embarrassment, to say the least. Everything in the story is false except the C.V. of the governor. We have been receiving scores of phone calls not only from within Nigeria but from abroad on this matter. We are aware of people jostling for the position but when journalists allow themselves to be used to publish absolute falsehood for whatever reason, then we have to be very careful. It is a disgrace to the profession." The central bank has no idea where they got the idea, but told Newsmakers, "We surely do know that the governor is still very alert and intelligent in the pursuit of his vision and mission for a first class central bank."
Richard Lambert was given a run for his money before Britain's Treasury Select Committee when prodded and poked over what on earth he was doing on the Bank of England's MPC (monetary policy committee) without an economics degree to his name. Lambert proceeded to describe how he was appointed. He had received two long-distance phone calls while in Japan from Ed Balls, Gordon Brown's chief economic adviser, and Gus O'Donnell, permanent secretary to the Treasury. This seems to have been about the extent of the interview process. Was this sufficient due diligence? Was this best practice in making top appointments to the monetary policy committee? Or is the Old Boy Network still alive and kicking?
Of course it is. But anyone surprised at how informal this seems may need to be told that in 1990 Lambert, then editor of the FT, had hired Balls to work for him as a leader writer - although Lambert hastened to add that they are not "social buddies". If Lambert lacks economic expertise, he is certainly capable of spotting it early in the form of Ed Balls, who was hired a good four years before he went to work for Gordon Brown and was a key figure in the crucial decision to grant independence to the Bank in 1997 - quite a piece of foresight. The Bank's two-year time horizon shouldn't be too much trouble at all.
Andrew Crockett always did have one of those names that look as if it is just waiting to have a "sir" in front of it. Now the space has been duly filled as the former central banker and general manager of the BIS received a knighthood from the Queen of England. Newsmakers regards the suggestion that this is a consolation prize for not getting the top slot at Bank of England as unseemly. Mervyn King was always the front-runner for that, as he was the "chief engineer" of the successful new monetary policy regime - and more popular with the Treasury mandarins. But the title will lend lustre to the institution that Sir Andrew elects to lead next. The betting is that he will follow people like fellow economist Stanley Fischer into a top job in the private sector. When will he tell us who it will be?
A Gaggle Of Governors
This week there will be an impressive gathering of central bankers in
London, to attend the Bank of England's annual symposium and send Eddie
George happily riding off into the sunset (his last day as governor is
June 27). A gaggle of governors will also attend a more public forum to
discuss of some key topical issues in central banking, about which more
here: http://www.cbcglobelink.com/cbcglobelink/events/Bfss03/CBC_Bfss03.pdf
Neil Courtis, editor of Central Banking's very own Financial Regulator
journal, will be moderating a session on Basel 11. Newsmakers will be
sure to report if anything untoward occurs.
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