• China: the revaluation that wasn’t
• PBOC desperate
• John Berry – honourable exception
• FAZIO stays (for now)
• Female deputy for SARB
• Tito plays it safe
• Buchholz named as a candidate for Fed seat
• Greenspan: “final” appearance – or is it?
• IMF chief draws fire
• Bernanke on Fed chairman
• Guinigundo moves up in the Philippines
• I.G. Patel will be long remembered
• Oxford honour for former RBI chief
• Former Central Bank of Malta governor dies
• Interview with St Louis Fed’s Poole
• Phil Fedpresident recognized as global citizen
• White House may want business experience for Fed chair
• Fed’s new educational website
• New Zealand to block Zimbabwe visit
• Interview with Malaysia ’s Zeti on Islamic finance
• FAREWELL TO WIM DUISENBERG

China: the revaluation that wasn’t
Surely this must rank as one of the strangest episodes ever in international finance. After months of speculation and pressure, China makes a mild announcement of a change in its exchange rate system. The entire world leaps to the conclusion that China must have done what the United States and almost everybody else has been urging – make a first step towards a big revaluation. But it then turns out to be nothing of the kind!

After literally hundreds of articles around the world analysing China ’s so-called historic move on July 20, and following reactions from the IMF, OECD, and central banks, smiles of triumph from the US treasury secretary, and press briefings about how US diplomacy eventually made China crumble - suddenly they are all wrong.

Nothing – or virtually nothing – has in fact happened. China is basically keeping its fixed exchange rate! Red faces all round.

If you had come to Central Banking Publications’ June 20 conference, “Sovereign Asset and Debt Management”, you would have been better informed than the US secretary of the treasury and all these self-important economists.

All you had to do was turn up and listen to Robert Mundell talk about China (Bob is on the Advisory Board of Central Banki ng). Bob knows all the top people who matter in China .

http://www.centralbanking.co.uk/conferences/archv/2005/saad/programme.htm

SEE: “The Great RMB Controversy ,China ’s Reserve Position and Its Role in the International Monetary System” by Robert Mundell of Columbia University , a lecture given at Central Banking Publications “Sovereign Asset and Debt Management”, conference June 20 2005.

What happened was this. The Chinese for political reasons announce a change in their exchange rate which gives them at the same time more independence from the United States and more control over their exchange rate and their money market than before.

Mundell has always acknowledged that if the dollar itself became unstable, China would no longer use it as an anchor for its monetary policy. The Chinese are preparing for that in advance.

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PBOC desperate

Desperate to stem the wrong-headed speculation of a rapid appreciation of the RMB, the People’s Bank of China on Tuesday July 26 denied what it described as mistaken news reports that the move to break the currency's peg to the dollar last week could lead to a stronger yuan:

"Gradualism is one of the important principles in the yuan exchange rate mechanism reform."

"Gradualism is aimed at the gradual reform of the yuan exchange rate mechanism, not at the gradual adjustment of the level of the yuan exchange rate."

Can you get any clearer than that?

A report by the People's Daily added that the change was based on China 's economic needs, not pressure from the United States or other trading partners.

The next day, still having no luck persuading foreigners that their preconceptions were mistaken, the PBOC issued a “solemn statement”, which is self-explanatory. Please go to this link:
http://www.pbc.gov.cn/english/detail.asp?col=6400&id=547

FAZIO stays (for now)

Bank of Italy governor, Antonio Fazio, looks set to stay on after the Italian cabinet yesterday decided to postpone any decision regarding his position until after the summer recess. Fazio has been under fire in recent weeks over his role in blocking foreign take-over bids for two Italian banks.

Leaked evidence from tapped telephone conversations between Fazio and Gianpiero Fiorani, the chief executive of an Italian bank that the governor allegedly favoured during the bidding process, has lead to calls from opposition parties for Fazio to either step down or see his authority curtailed. The governor of the Bank of Italy is appointed for an indefinite term and cannot be forced to resign by the government.

In one of the recorded conversations Fiorani mentions that he “knows how much [Fazio] had suffered”. “Thank you, thank you … I would give you a kiss on the forehead if I could”, Fiorani is believed to have said. Fazio also told Fiorani that “it’s important not to make any wrong moves now”.

The Italian cabinet met on Wednesday to discuss a report by Domenico Siniscalo, the minister of finance, on the matter of Fazio’s involvement in blocking the foreign take-overs. The suspension of Fiorani as chief executive of Banca Popolare Italiana the day before increased the pressure on Fazio.

Speculation prior to the meeting was rife that the cabinet was evaluating two possible courses of action. The first involved changing the laws to allow for a fixed term for the governor of the Bank of Italy, making it easier to remove officials if required. Second, it was believed that the cabinet would consider limiting the range of responsibilities related to the Bank of Italy. Transferring the central bank’s power as supervisor of banking sector competition to the national antitrust authority was one outcome that had been mentioned.

However, after discussing the report, the cabinet on Wednesday announced that no decisions had been taken and that the matter would be taken up again after the parliamentary recess. Silvio Berlusconi, the Italian minister, did not attend the meeting. According to media reports, Berlusconi had a sore throat.

Commentators have argued that the debacle underlines a number of problems in Italian banking sector. During his 12 year reign at the Bank of Italy, Fazio has not allowed a single foreign take-over of an Italian bank.

Female deputy for SARB

Renosi Mokate this week joins Ian Plenderleith and Xolile Guma as a deputy governor of the South African Reserve Bank for a five-year term. Her responsibilities include overseeing the running of the corporate services department, the SARB College , human resources, legal services, business systems and technology, and internal audit.

Mokate has little prior exposure to central banking issues, having served as the chairperson of the Financial and Fiscal Commission for the past year. Previously, she served as a director at the Human Sciences Research Council and the University of Pretoria . She also held positions at the Development Bank of Southern Africa and the country’s Central Energy Fund. Mokate was also chief executive officer of the Independent Electoral Commission during the first democratic elections in 1994.

She holds MA and PhD degrees from the University of Delaware and had an academic career in the United States before returning to South Africa . Her fields of specialisation are in development economics and planning, urban economic policy and policy analysis.

Her appointment has not, however, passed without giving rise to some embarrassment. According to local newspaper reports, a day after her appointment a rather badly-timed report by the public protector, the government ombudsman, into alleged fraud in the awarding of government contracts in the energy sector mentioned that the government had suffered large losses from oil transactions allegedly “as a result of Mokate’s incompetence.” It also alleged that she was relieved of her position as head of the Central Energy Fund due to financial mismanagement. There is no suggestion at all that she was involved in the alleged fraud itself.

A spokesperson for Mbeki’s office said that the president was “convinced that there was no basis for him not to continue with the appointment” and that Dr Mokate “has no criminal conviction that would have precluded her candidacy”.

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Tito plays it safe

Was South African Reserve Bank (SARB) governor, Tito Mboweni, providing analysts with clues as to stance of monetary policy? The SARB last week revealed that Mboweni’s salary had increased by 4.4% over the past financial year (his salary is always disclosed retrospectively).

The SARB’s inflation target is set at 3% to 6% for the CPIX index and local media reports have speculated that a salary increase below the mid-point of the range could be an indication of hawkish sentiments on the part of the governor. The argument goes that if Mboweni was completely neutral with regards to inflation over the target range, he would have awarded himself a 4.5% pay rise.

Well, yes and no. That makes several assumptions – for instance, that he should not receive any real increase.

It’s fair to say, however, that the news of Mboweni’s increase raised far less eyebrows this year than the more generous 12% and 9% increases he received in 2002 and 2003 respectively (the inflation target was also 3% to 6% at the time). Ironically, Mboweni has for years been trying to have public servant’s salary increases linked to increases in CPIX inflation.

His deputy governor, Ian Plenderleith saw a mere 1.9% increase in his pay check, which in the current environment in South Africa amounts to a pay-cut in real terms.  

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Greenspan: “final” appearance – or is it?

A California congressman has said he wants to introduce legislation to give Alan Greenspan five more years in the job as Federal Reserve chairman. Rep. Brad Sherman, a California Democrat, told Greenspan he would propose legislation that would exempt him from the current legal requirement that he must leave the Fed on January 31 2006 when his current board term is completed.

Sherman told Greenspan he had done such a good job that he should be given a further five years at the Fed. Greenspan jokingly asked, “Does my wife have a vote on this?” Sherman 's comment was one of many accolades the Fed chief received at what was likely to be his final appearance before the House Financial Services Committee to present the Fed's semi-annual report on monetary policy.

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IMF chief draws fire

This article (see link below) by Daniel Altman published in the International Herald Tribune on Wednesday 27 July suggests that “a whispering campaign” has begun in Washington against IMF chief Rodrigo de Rato. People “with intimate knowledge of the Fund’s workings” accuse Rato of being a hands-off manager who spends too much time abroad and eyes Spain ’s highest elected office, it says. de Rato flatly rejects the charge. In Newsmaker’s view, the article accurately reports views of many staff members.

Particularly damaging was an interview he gave to The Banker in November 2003 where he showed a lack of interest in his job: “The IMF job is one that is impossible to do well.”

His biggest job should be to lead the so-called strategic review of the future of the IMF, but according to insiders this job (which he delegated to Anne Krueger senior deputy MD) has degenerated into an arid budgeting exercise.

http://www.iht.com/articles/2005/07/26/business/rato.php

Bernanke on Fed chairman

Ben Bernanke has said he will not be involved in advising George W. Bush on whom he should pick to succeed Alan Greenspan as chairman of the Federal Reserve. "I don't expect to be involved in the discussion of the chairmanship," Bernanke, a former Fed governor, told a roundtable with journalists. Graciously, however, Bernanke indicated that he would be ready to provide advice on candidates for the two open seats on the Fed's Board of Governors, "if I am asked my views on particular individuals or characteristics." But he said the decision itself on those two positions would be made elsewhere in the White House.  

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Guinigundo moves up in the Philippines

The governor of the Bangko Sentral ng Pilipinas, Amando M. Tetangco, announced the appointment of economist Diwa Guinigundo, 51, as deputy governor of the BSP’s Monetary Stability Sector. As such, he will be in charge of economic research, economic statistics, monetary and financial policies, branch operations, loans and credits, asset management, cash department operations, as well as currency issuance and retirement. Prior to this, he was assistant governor in charge of monetary policy. He was director of the BSP’s Department of Economic Research from 1994 until 2000 when he was promoted managing director.

It was during this time that the BSP started to lay the groundwork for the shift of monetary policy framework from monetary aggregates to direct inflation targeting. The Monetary Board approved the transition in 2000 until it was formally implemented in 2002 after a series of public consultations all over the Philippines .

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I.G. Patel will be long remembered

I.G. Patel, who was governor of the Reserve Bank of India and who has died aged 81, will be remembered by all who knew him as a fine public servant, an interesting economist and above all as a gentle, humane, man. He was a charming and witty representative of India in the many international institutions and financial committees that he joined during his long career. The board and staff of Central Banking Publications are especially grateful to him for his friendship and support for Central Banking journal since its establishment 16 years ago.

“IG”, as he was universally known, was one of a generation of leading officials whose careers spanned the great change from an age of centralised planning and socialism to the world of liberalised financial markets and privatisation. A product of King’s College Cambridge (like another central bank governor, Mervyn King, who graduated some 20 years after IG), at a time when economics teaching there was dominated by teachers from the left, like Joan Robinson and Nicholas Kaldor, IG joined the Ministry of Finance in India where he stayed from 1954 to 1972.

As chief economic adviser he oversaw the nationalisation of the leading Indian banks (Mrs Ghandhi asked him to prepare the necessary legislation, write a note for the Cabinet and draft a speech for her announcing this all in 24 hours) while at the end of his career he found himself, as director of the London School of Economics (1984-90), being forced in effect to launch it on the path of commercialisation by another formidable lady prime minister – Mrs Thatcher.

From nationalisation to privatisation. Two different worlds, two very different ladies. But one feels sure IG managed his relations with both with equal aplomb, keeping his private feelings to himself. Even for someone as charming as IG, sometimes that must have been difficult. He tells in his memoirs how when he met Mrs Thatcher she said: “Oh, you are going to be principal of that school! How is it that the LSE always has foreigners at its head?”

S. Venkitaramanan, one of IG’s successors as governor of the RBI, recalls that even as early as 1990 IG felt confident that India ’s rate of growth could increase beyond 5% to 6% a year – a forecast that has come true. “SV” concludes with this fitting tribute:

“In Dr Patel’s passing, India will miss a great economist and a humane individual, who was above all a visionary, a bold leader of men, who was among the great builders of modern India ”.

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Oxford honour for former RBI chief  
While IG went to Cambridge , Manmohan went to the other place. Four decades after he left Oxford University with a doctorate in economics, Indian prime minister, former governor of the Reserve Bank of India (and a great friend of IG’s), Manmohan Singh went back there to collect an honorary doctorate on July 8.

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Former Central Bank of Malta governor dies

Anthony Galdes, who headed the Central Bank of Malta from 1987 to 1993, died this week aged 74, after a lifelong commitment to public service.

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Phil Fed president recognized as global citizen

The Global Interdependence Center (GIC) has presented Dr. Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia , with its 2005 Global Citizen Award for his contributions to the global economy in the areas of public policy, business, and research.

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White House may want business experience for Fed chair

Some observers are saying that the White House may want to look towards the business community for a successor to Alan Greenspan. Do any of the three potential heirs usually named as possibles to fill Greenspan’s shoes – Feinstein, Bernanke and Hubbard - meet the “real world” test?

But, Paul Volcker, arguably the greatest Fed chairman of all, was a public servant from the start to end of his career and the trend is to favour economists like Mervyn King over businessmen. So long as economists continue do well in the top jobs, let them get on with it, we say.

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Fed’s new educational website

The Federal Reserve Board has launched a new online project with USA Today that teaches middle-school and high-school students about economics and personal finances by challenging them to construct a newspaper front page.

Students are provided with instructions and a template of the front page of The Fed Today . Over four weeks, they are expected to consult the Federal Reserve's recently redesigned education web site – FederalReserveEducation.org – for information needed to complete all of the elements of the page, including headlines, photos, captions, graphs and statistics. The project helps teachers meet national and state academic content standards for high school economics and personal finance courses.
It may be found at:
http://www.usatoday.com/educate/federalreserve/index_new2.html

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New Zealand to block Zimbabwe visit

New Zealand will refuse entry visas to Gideon Gono, governor of Zimbabwe 's central bank, and members of his staff, who were reportedly planning to visit the country, Prime Minister Helen Clark said this week.

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Interview with Malaysia ’s Zeti on Islamic finance

The Malaysian central bank governor, Dr Zeti Akhtar Aziz, has said there is room for Islamic finance worldwide, as the ultimate goal of Islamic financial services is to enhance wealth creation and promote sustainable and balanced economic growth.

FAREWELL TO WIM DUISENBERG

Wim Duisenberg, the first president of the European Central Bank (ECB), has this week been rightly praised for his role in establishing credible and independent European monetary institutions. Duisenberg was found dead on Sunday at his home in the south of France , aged only 70.

Duisenberg joined the Netherlands Bank in 1981 after a four-year stint as a labour party minister of finance. In 1982 he became the governor of the Netherlands Bank – a position he held until 1997. During this period the Dutch guilder developed a reputation for stability rivalled in Europe only by that of the D-mark. This gave him a reputation as an inflation hawk in the style of the old Bundesbank governors. During his time at the ECB he was often criticised for a perceived reluctance to cut interest rates due to fears that such cuts would generate inflationary pressure. Despite this reputation, the ECB cut interest rates in the eurozone to their lowest post-second world war level under his auspices.

Duisenberg aroused very different emotions in those who knew him well. When he was making his way in the world, he was often seen as excessively ambitious, affected, and as a showman. While he was at the ECB, perhaps because he didn’t really have anything left to prove, having scaled the heights in the world of central banking already, and following his second marriage, he seems to have mellowed personally. Many then saw and appreciated his warmth, sense of humour, and his vitality – all allied with a steely determination to make “his” institution into the model of a modern central bank.

Indeed, Duisenberg’s role was paramount in establishing an ECB relatively free of political intervention. He clashed openly with European politicians and business leaders, insisting on and securing full operational independence.

“Central bankers are like cream..”

His direct personal manner often made him unpopular with politicians and market analysts. Once during an interview with the Financial Times in 2001, Duisenberg made his irritation felt with a suggestion that eurozone interest rates were too high, by stating: “Central bankers are like cream – the more you whip them, the stiffer they get.”

Comments by leading European politicians and central bankers on Monday highlighted Duisenberg’s stature and legacy. Jean-Claude Trichet, his successor at the ECB, said Duisenberg played a “considerable” role in the “construction of Europe” and in setting up the monetary institutions in Europe .