• Financial regulators for hire
• Ignatiev for new term
• Plenderleith retires
• Target practice for Turkey
• -and should reappoint the governor
• IMF supports Fischer on bank of Israel law
• China calls for coordination on reserves
• Stark HEADS for the ECB
• -and Stark’s replacement will be…
• Shamshad Akhtar succeeds Ishrat Hussain
• Gerard quits reserve bank
• Stevens for the top job?
• Central banker to be prime minister
• Why the new boy voted against Mervyn
• Proof-reader needed in Philippines
• More stuff on Fazio
• Ulan Sarbanov at work
• Hervé Hannoun to the BIS
• Toddler Ben “fond of currency”, says mum
• The Bernanke Files
• The new finance team in Berlin
• Tense relationship with Bundesbank
• New future fund in Germany?
• “Hands off our gold!”
• Welteke sues
• Greenspan swears ALLEGIANCE TO THE CROWN
• - and saves the world again
• Puzzling out gold’s message
• Is money losing out to real assets?
• Central banks miss the gold bus
• “International monetary policy after the euro”

Financial regulators for hire

The pressure to use precious regulatory experience to the fullest degree is increasingly causing many senior financial supervisors to criss-cross the globe as regulators for hire. Michael Foot, who with Howard Davies left the Bank of England to establish the UK Financial Services Authority, is now inspector of banks and trust companies in the Bahamas. Bill Ryback, deputy CEO at the Hong Kong Monetary Authority, was once associate director of banking supervision at the Fed (and their representative on the Basel Committee). Philip Thorpe (a New Zealander by birth), now chairman of Qatar’s new offshore regulator, has come to them via the Hong Kong Securities and Futures Commission, IMRO and then the Financial Services Authority in the UK, and recently Dubai’s new offshore regulatory authority.

There are other examples, including David Carse (Jersey out of Hong Kong), Marcus Killick (Gibraltar out of Isle of Man via Cayman), John Palmer (Toronto Centre out of Singapore and Canada).

This trend, which has parallels in the world of central banking, is driven by the internationalisation of financial regulation itself. The quickest way to implement Basel II is to hire someone who already knows how to do it rather than train one’s own people from scratch.

At the same time, the personal relationships being built in this international merry-go-around are laying the foundations on which a genuinely international regulatory careers market is being built.

As pointed out in the new edition of How Countries Supervise their Banks, Insurers and Securuties Markets (2006), the creation of a cadre of like-minded, roving regulators all committed to broadly similar standards of regulatory practice may turn out to have continuing beneficial effects long after the headline regulatory initiatives which occupy the financial press have been forgotten.

http://www.centralbanking.co.uk/publications/books/hcstbism.htm.

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Ignatiev for new term

Vladimir Putin has approved the appointment of Sergei Ignatiev for a second four-year term as central bank chairman. What’s his record so far? Well, the late Wim Duisenberg, head of the ECB, used to praise him highly, and welcomed how he fully cooperated with Western financial experts. In Russia Ignatiev is considered along with Kudrin, the Minister of Finance, and Greff, Minister of the Economy, as being one of the core liberal policy makers in the present administration. Inflation is steadily if slowly receding despite the alarmist warnings of many experts. The rouble is slowly appreciating. And that is not entirely down to the inflow of petrodollars.

One may criticise the policy of keeping all foreign exchange reserves in American and European bonds and securities, but that is certainly not Ignatiev’s personal decision. In any case Russia has courageously indicated it may raise its gold ratio. And he is also reforming the organisation of the central bank itself. Quite a good record, in fact.

Target practice for Turkey

The announcement by the governor of Turkey’s central bank, Sureyya Serdengecti, that the central bank will adopt formal inflation targets from January 2006 marks another step along the road of monetary policy reform that has seen Turkey shrug off its volatile past. While the move was widely anticipated, its details are of interest. Serdengecti said a point target of 5%, with a symmetrical range of 2% on either side, would apply for 2006. The central bank will set inflation targets three years in advance, with the 2007 and 2008 target lowered to 4%. Turkey’s central bank is the 21st fully-fledged inflation-targeting central bank, and the 14th emerging market to implement the monetary policy framework.
 

-and should reappoint the governor

Unfortunately, the government has still failed to confirm that Sureyya Serdengecti will be re-appointed to serve a second term as governor – something that is surely desired by financial markets.

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IMF supports Fischer on bank of Israel law

The IMF delegation visiting Israel this week has declared its support for a monetary committee for making interest rate decisions and an administrative council to take responsibility for managing the Bank of Israel. This supported Governor Stanley Fischer's position. The mission welcomed the government's approval of the proposed new Bank of Israel Law which it said should strengthen the independence of the central bank. It added that there should be no ambiguity about the Bank of Israel's primary function, which it said was to ensure price stability.

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Stark HEADS for the ECB

Germany wants to hold “its seat” on the European Central Bank's executive board said Germany’s deputy finance minister, Thomas Mirow, last week. He added that they could nominate Juergen Stark, Bundesbank vice-president, to succeed Otmar Issing next year.

There has been speculation that Stark, who is an expert on international financial relations and is not a monetary economist, may not succeed Issing in the latter’s capacity as chief economist of the ECB. Thus there may be a reshuffling of roles at the top of ECB. There is no shortage of expertise in monetary theory. Either Lucas Papademos, the ECB’s vice-president, or Italy’s Lorenzo Bini Smaghi would fit the bill. Papademos and Bini Smaghi have the academic credentials for the job of chief economist, with PhDs in economics from the Massachusetts Institute of Technology and the University of Chicago respectively.

This rather awkward manoeuvring would not have been necessary had Axel Weber been available to be a candidate for the ECB position and if Stark rather than Weber had become the Bundesbank’s president. In fact one suspects that as an economist Weber would rather have the ECB position, which is not so prestigious, but gives more substantial influence on monetary policy for the eurozone.

But would the other countries be willing to give Germany a hold, not only on one of the precious board seats, but also the key role of chief economist?

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-and Stark’s replacement will be…

Germany’s coalition government has agreed that the Christian Democrats can nominate the new Bundesbank vice-president. Out of the current Bundesbank board members, Hans Reckers (CDU) and Franz-Christoph Zeitler (CSU) are considered suitable candidates – at least they belong to the right party. Zeitler is the front-runner.

To replace Reckers or Zeitler, it has also been agreed that a federal province (Lander) led by a CDU government will then nominate a new board member. For instance, Baden-Wurttemberg could propose its current finance minister, Gerhard Stratthaus.

Talk about a political carve-up! Doubtless these are all honourable and well qualified candidates, but it doesn’t look good, does it?

Shamshad Akhtar succeeds Ishrat Hussain

The president of Pakistan appointed Dr Shamshad Akhtar as governor of the State Bank of Pakistan on Saturday December 3 for three years. She takes over at a time when Pakistan is struggling to cope with the aftermath of the terrible earthquake in October, but when, fortunately, the economy is in much better shape than for many years. This excellent performance is due in no small part to the success of the policies pursued by her predecessor, Ishrat Hussain.

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Gerard quits reserve bank

Robert Gerard, an Australian businessman, resigned from the Reserve Bank of Australia's interest-rate-setting board on Friday December 2, four days after reports he had to pay A$150m ($111m) to settle a tax dispute. Gerard said that while he had not broken the law, the controversy had brought “unwanted attention” to the board.

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Stevens for the top job?

This incident has focused attention not only on the procedures for appointing board members but also on the succession to Ian Macfarlane as governor when he retires next September. It is essential that confidence (slightly dented by the Gerard affair) should be maintained after Macfarlane’s successful reign. Already some commentators are urging an internal appointment. According to The Australian after the Gerard imbroglio “it should be obvious that the choice has to be one that will not excite any controversy.”

“The only obvious way to ensure that is to make the appointment from within the Reserve Bank, and the internal candidate is obvious - Deputy Governor Glen Stevens. It is difficult to think of a private sector candidate outstanding enough to be clearly preferred over Stevens, or one that would carry less risk of subsequent scandal.”

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Central banker to be prime minister

The governor of the Central Bank of West African States, Charles Konan Banny, has become prime minister of the Ivory Coast. The move was brokered by African mediators including the South African president Thabo Mbeki and Nigerian president Olusegun Obasanjo. Banny will have a mandate under a UN-backed deal giving him powers to carry out disarmament and electoral reforms, with the aim of organising presidential elections by the end of October next year.

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Why the new boy voted against Mervyn

The new boy on the Bank of England’s Monetary Policy Committee (MPC), David Walton, has said governor Mervyn King was outvoted in August after a “mature discussion” on interest rates, according to a report by Gary Duncan and Gabriel Rozenberg in The Times on November 30.

In only his second month on the MPC, Walton, former chief European economist at Goldman Sachs, sided with other external members and the Bank’s chief economist, Charlie Bean, to outvote King and cut rates. But Walton plays down that split as one that rested on a “fairly fine judgment”:

“I think everyone was really very relaxed, actually. It was a very mature discussion and there were certainly no sort of histrionics, or anything like that.”

Then, Walton says, he backed a rate cut against King since “things just looked very soft”. He had feared that, without the rate cut that markets had been anticipating then, helpful falls in the pound and market interest rates could have reversed. “It seemed to me that, given the balance of risks, particularly the risk that the economy would lose a bit more momentum, some precautionary cut in rates was appropriate.”

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More stuff on Fazio

Oh dear. The beleaguered governor of the Bank of Italy, Antonio Fazio, and members of his family allegedly received numerous gifts including Dom Perignon Champagne, a Cartier watch, a Prada handbag, rare religious texts and thousands of dollars in other gifts in a five-year period from Gianpiero Fiorani, the former chief executive of Banca Popolare Italiana (BPI).

Fiorani's gifts, reportedy found by prosecutors on the banker's computer, are described in a book, "L'Intrigo," by Italian journalists Giovanni Pons and Giuseppe Oddo. A report in the Wall Street Journal on December 12 puts the value at around €20,000 excluding rare religious texts and antique books. Allegedly, some other Bank of Italy officers also received similar expensive gifts from Fiorani.

Earlier this year wiretaps of phone calls showed that Fazio supported BPI's unsuccessful effort to acquire Italy's Banca Antonveneta SpA.

Staff at Italy's central bank held an eight-hour strike on Monday December 12 in a dispute over contracts that some employees said was also a protest at the governor’s conduct which did not however break the bank’s internal code of conduct.

On December 13 there were two further developments. Fiorani was taken into custody by the Italian authorities on suspicion of embezzlement. And the European Commission said it would take legal action against Italy for its handling of the takeover affairs.

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Ulan Sarbanov at work

Newsmakers understands that the governor of the central bank of the Kyrgyz Republic, Ulan Sarbanov, has been able to resume his full duties. Earlier this year he was temporarily placed under house arrest by the incoming so-called “revolutionary” government. Sarbanov is a highly professional central banker with a full understanding of modern financial markets and central bank risk management - and he showed his leadership skills in protecting the assets of the central bank during the coup d’etat. He is just the kind of person an emerging market country like Kyrgyzstan needs and it is welcome that the government seems to have recognised this.

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Hervé Hannoun to the BIS

Hervé Hannoun, currently first deputy governor of the Banque de France, is to be deputy general manager of the Bank for International Settlements for a five-year term. That leaves quite an attractive job vacant in Paris. It may go to Jean-Paul Redouin, the current second deputy governor, but other names in the frame include Jean-Pierre Landau, now at the EBRD and Pierre Duquesne, France’s executive director at the IMF. Some say that France has lost influence in the latest round of appointments in Brussels but it is certainly not running short of able officials to take top jobs in central banking.

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Toddler Ben “fond of currency”, says mum

Ben Bernanke was always fond of numbers and currency, according to research by another Ben – Ben White of the Washington Post.

“Ben Shalom Bernanke was born on December 13 1953 in Augusta, Georgia, and grew up in Dillon, South Carolina, a small farming and furniture manufacturing community just over the North Carolina border. His mother, Edna, was a substitute teacher. His father, Philip, was a pharmacist at the Jay Bee Drug Co., a store founded by Philip's father, Jonas, who moved to South Carolina from New York in search of a quieter life.

Edna Bernanke said she noticed early that her eldest son had a knack for numbers and an apparent fondness for currency.

"We came home one time, and he was playing with pennies with someone," Bernanke said, referring to her three-year-old son. "He could add and subtract. You'd say, 'What if I had nine pennies and I take away three?' and he'd tell you right away."

“Bernanke won the state spelling bee at 11, demonstrating the gentle persuasion that friends say he will bring to the Fed. At the state competition, Bernanke was told he misspelled a word. He left the stage. But he was sure he was right. "He came back on stage and said he'd spelled it correctly," Edna Bernanke said. "And he was right."

“In high school, Bernanke scored 1,590 on his SAT, a near-perfect score. He taught himself calculus as a senior because his school did not offer the course, and he became a speed reader. But Bernanke didn't spend all his time in the library -- his high school afternoons were divided between band practice (he played the saxophone, as did Greenspan) or shooting hoops with friends in his back yard. The schools in Dillon were just starting to integrate, and the young Bernanke drafted a novel about top white and black football players coming together to form a team at a new high school.”

Read article:
http://www.floridatoday.com/apps/pbcs.dll/article?AID=/20051120/BUSINESS/511200314/1003

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The Bernanke Files

Since the White House announcement on October 24, the Financial Markets Center has published a detailed package of four pieces on Ben Bernanke's nomination as Federal Reserve Chairman.

http://www.fmcenter.org/site/pp.asp?c=8fLGJTOyHpE&b=276066

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The new finance team in Berlin

Germany’s finance ministry has undergone many changes at top level following Mrs Merkel becoming chancellor in place of Gerhard Schroeder on November 22.

The new finance minister is Peer Steinbruck from the left-wing SPD party, a former finance minister and prime minister of NorthRhine-Wastfalia. He replaced Caio Koch-Weser, the formidable state secretary for international financial and monetary policy, by Thomas Mirow, an economic advisor to Gerhard Schroeder. Mirow will be responsible at the political level for German fiscal and monetary policy, as well as representing Germany on European and international bodies.

The other two state secretaries from the civil service have also changed. The job of Gerd Ehlers who was responsible for budgetary affairs has been taken by Werner Gatzer, managing director of the German Finance Agency. Volker Halsch is transferring his responsibilities for tax issues to Axel Nawrath, managing director at the Deutsche Borse. In fact, both Gatzer and Nawrath used to work for the federal finance ministry a few years ago.

Steinbruck’s main opponent in Bundestag will be Otto Fricke. The 39-year old liberal member of parliament was nominated by the FDP parliamentary group to become head of the budgetary committee of Bundestag. This influential position is given to the largest opposition party in parliament.

At the European level, Klaus Regling, director-general for financial and economic affairs, will keep his position for the moment.

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Tense relationship with Bundesbank

As recent comments by the Bundesbank’s president, Axel Weber, indicate, the relationship between Germany’s central bank and the new federal government in Berlin has started on a rather tense note. The coalition partners of SPD, CDU and CSU have resorted to smoke and mirrors (in the shape of article 115 of the German constitution) in order to justify the budget for 2006. This article allows continued fiscal deficits if needed to restore economic balance.

Quite properly, the Bundesbank argues that it is illegitimate to use this as an excuse at the time of an economic upswing in Germany. According to the Bundesbank president, more money should and could be saved in the 2006 federal budget.

But there are other issues also clouding the relationship.

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New future fund in Germany?

It is planned to start a “future fund” worth €25 billion for investment in transport, infrastructure, research and development. One source said that the politicians discussing using revenues from the sale of Bundesbank gold reserves for the fund. Before he became finance minister, Steinbruck also floated this old chestnut.

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“Hands off our gold!”

But on November 13 Axel Weber rebutted such proposals. Weber welcomed the fact that the nominated finance minister wanted to “make contact” in order to “obtain an explanation of the principles governing the investment decisions of the central bank”:

“I assume that there will be an agreement to respect each other’s responsibilities.”

The well-informed German financial paper, Börsen-Zeitung, commented that Weber has a clear message for Steinbruck: “Hands off our gold!”

The business newspaper also writes that using revenues from gold sales may make economic sense, but will only become a real policy option if and when the federal government has shown its capacity to consolidate the budget. This may well reflect the Bundesbank’s own position.

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Welteke sues

Ernst Welteke, a former president of the Bundesbank, is suing his former employer. After his resignation in April 2004, he realised that he would receive “only” €8,000 per month instead of three times as much beforehand. According to a law in the state of Hesse, Welteke’s 21 years as member of the state parliament (Landtag) are not included in the Bundesbank’s calculations of his pension payments.

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Greenspan swears ALLEGIANCE TO THE CROWN

At his final G7 meeting (held in London) Alan Greenspan received various tributes, honours and gifts, including the freedom of the City of London. The UK’s chancellor of the exchequer, Gordon Brown, explained the procedure:

“As you know, yesterday he also became a freeman of the City of London, and he has signed an oath of allegiance to Her Majesty The Queen to do so — something as you know Americans have been reluctant to do for the past 250 years,”

Brown informed him that former US presidents Dwight Eisenhower and Theodore Roosevelt had also taken similar oaths, so it was probably safe.

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- and saves the world again

At a dinner, the governor of the Bank of England, Mervyn King, presented Greenspan with a cartoon depicting him as a goalkeeper saving the world from one economic crisis after another.

“It's another great save, but the shots keep on coming,” it said.

"We shall miss you as we try to carry on saving those shocks," King said, thanking Greenspan for his work on behalf of the G7 and the world of central banking.

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Puzzling out gold’s message

It will be interesting to learn what Greenspan’s view of the gold price is when he is finally free to talk more openly after he retires. Greenspan has always taken gold seriously and still does, as readers of last month’s Newsmakers will know. Newsmakers bets he would not dismiss the soaring gold price as just the result of momentum trading and ill-founded speculation. The way the price has been building gradually over recent months carries some ominous message – but what is it?

Why is gold hitting 24 year highs ($538 on December12)? Why has the price doubled since 1999, when there remains little sign that inflation is taking off? Why has it been rising simultaneously not just in dollars but in most other currencies worldwide?

One reason could be that the price is anticipating – in a few years’ time - the end of European central bank sales of gold and the possibility of large purchases from countries with a long-standing historical attachment to gold like China. The market has come to rely on central bank sales to fill the gap between demand and supply of newly mined gold. Without it, there will be a severe physical shortage.

Another reason could be that it is anticipating a future rise in inflation not yet factored into official forecasts or other financial markets. Notoriously, official forecasters cannot see beyond the end of their noses, and bond markets at present seem to be equally myopic. The gold market may be more far-seeing. Or else it is just joining in the general revaluation of real assets in a world awash with liquidity.

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Is money losing out to real assets?

In the City, bullion bankers in touch with the sources of demand say that there is a rising world-wide demand for gold as money. Customers are no longer looking just at the dollar price, as they used to, but rather at the prospects for their local currency. Often, what they see around them makes them buy gold.

What is going on? One theory favoured by Newsmakers is that while independent central banks have done quite well to control inflation recently and thus restore confidence in money as a store of value, governments have at the same time been undermining some of the other key characteristics of a good currency. By ever more rigorous attempts to track and hunt down those who abuse the financial system, backed by ever more draconian controls (when will the US introduce the death penalty for money laundering?) they are also reducing its attractiveness even for law-abiding citizens.

Bankers used to be able to keep one’s financial affairs secret, but now people are no longer confident that their financial affairs can be kept from the prying eyes of officials. Gold is anonymous.

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Central banks miss the gold bus

Philip Klapwijk of GFMS, a specialist gold consultancy, said last week that he expected central bank sales of gold to decline and some significant purchases to take place. This was because governments and central banks seem to prefer to sell gold into a declining market, as in Gordon Brown’s pathetic sale of Britain’s gold reserves in 1999, rather than in a rising market, when they fear even greater embarrassment that Gordon has suffered.

But just look at the opportunities central banks have already missed to diversify into gold when the price was low! Their reserve managers bend their energies to earning a few basis points more than the benchmark in the current yield on their reserves while totally ignoring the gross misallocation of assets and exposure to a declining dollar. In terms of gold, the value of central banks’ vast dollar reserves has already halved in only five years – and this plundering of the national treasuries will go on under the noses of the central banks!

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“International monetary policy after the euro”

This title might be taken to imply that the euro is doomed. But that is not the intent. Rather, the book (edited by Robert Mundell, Paul Zak and Derek Schaeffer and published by Edward Elgar) discusses what form monetary arrangements might take in this century: the possibilities range from a single world currency, to a world with three currency blocks, to a large number of currencies pegged to two or three major currencies, or to a large number of floating currencies. It brings together nine articles by economists, political scientists, commentators and officials. Authors include the late Robert Bartley of the Wall Street Journal, professors Max Corden, Robert Skidelsky, the biographer of Keynes, and Richard Cooper, together with Robert Pringle of Central Banking and Enzo Grilli.

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