• Academy Ascendancy
• King visits the House of Lords
• A sustainable US deficit?
• De Rato at Banque de France bash
• BCCI Testimony
• Norman Chan's golfing inspiration
• Watch Bernanke's socks
• Greenspan's critics
• Top up the punchbowl!
• Greenspan's golden goodbye
• Lazear to succeed Bernanke at CEA?
• Greenspan and Ali honoured
• Greenspan's driving ambition
• Now China has a stability report
• Pay package pecking order
• Jim: door-opener for Citigroup
• Why PBC has opened Shanghai head office
• Fischer wows Israeln
• Book by Marion Williams
• Somalia's has sacked central banker wants job back
• Interview with Nobel Prize winner Thomas Schelling
• Central banker named Cricket World Cup director
• BIS appoints Daniel Lefort as general counsel
• Quiz on the Nobel Prize for Economics

Academy Ascendancy

Anybody who is not a top-flight academic economist will soon start to feel distinctly out of things in the exclusive club of central bank governors. Ben Bernanke and Mervyn King are old pals from the days in the early 1980s when they had adjoining rooms as visiting profs at the MIT. Both have made original contributions to monetary and finance theory. Stanley Fischer at the Bank of Israel is one of the current governors who can definitely hold their own in this company, to say the least, but of how many other governors can that be said?
 
Well, there is Axel Weber at the Bundesbank, who is no slouch academically, having been a professor of economics at several universities and head of prestigious research centres. David Dodge at the Bank of Canada has a PhD in economics from Princeton and has held posts as an associate professor of economics. Monetary policy committees are of course stuffed full with economists. But many central banks in Europe and emerging markets are still headed by people with a professional/civil service rather than academic background.
 
There are many exceptions, as for example, Seung Park , who at the Bank of Korea has been a professor at Chung-Ang University and president of the Korea Economic Association. Leszek Balcerowicz at the National Bank of Poland is a professor at the Warsaw School of Economics and has been chairman of the Center for Social and Economic Research in Warsaw . Charles Soludo at the Central Bank of Nigeria is Professor of Economics at University of Nigeria .
 
Many senior central bankers of course have advanced degrees in economics, but still relatively few governors come from an academic background. After all, it was not so long ago that the conventional wisdom held that market knowledge, judgment and administrative competence were what really mattered and “long-haired intellectuals”- who were thought to know little about how markets actually worked – couldn’t get a finance job for love or money

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King visits the House of Lords

Mervyn King started his evidence to the House of Lords select committee on October 25 by saying he was rather overawed by the “galaxy of stars” assembled to examine him: these included two former chancellors of the exchequer (Nigel Lawson and Norman Lamont, now Lords Lawson and Lamont), and a former governor of the bank – Robin Leigh-Pemberton (now Lord Kingsdown).
 
In fact he need not have worried; they treated him very benevolently, not even needling him with the obvious question about how it felt like to be outvoted about interest rates on your own committee (the FT’s European edition ran a bitchy headline about “the governor who does not govern”). They did ask him about whether the committee was as divided as it seemed.  This was greeted with astonishment. What? Divided? Perish the idea, he retorted, it was just that people had somewhat different views on “where the balance of risks lay”. What was really unusual was the long period of unanimity that had preceded present differences.
 
What mattered was the framework within which policy decisions were made and that was robust, wasn’t it? (Well, all these arrangements supposed to last for eternity are robust until they collapse).
 
The best questions were asked by the former governor Lord Kingsdown and former chancellor Lord Lawson:
 
“We all of us understand that the Bank operates monetary policy independently of the treasury” said Kingsdown, “ yet all too soon both deputy governors of the Bank will be former treasury officials (Rachel Lomax and the new deputy, John Gieve). Is this a matter of policy? Will it affect monetary policy decisions?.”
 
Dear me, of course not, was the reply. What else could the governor say? “Oh yes, of course, we are going to have a nice long period of low rates because that is what Gordon Brown wants” ?
 
Then Lord Lawson pitched in to ask what advice the governor would give to Ben Bernanke. Instead of retorting that that would be a cheeky thing to do, Mervyn smoothly replied that not only had he spoken to the next Fed chairman but had already given him some advice.  He had told Bernanke that “the most important time will be the next three months when he thinks out how he is going to do the job and how he will communicate with the rest of the world”.
 
What came across strongly was Mervyn’s confidence and indeed pride in the British system. The US system of policy-making depended very much on one man. By contrast, in the UK , if the whole MPC fell under a bus tomorrow, nothing much would happen. The staff would carry on. That is the strength of the British system

De Rato at Banque de France bash

This debate goes on and on. Roderigo de Rato, managing director of the IMF, does not think the pattern of imbalances is sustainable. Along with a galaxy of central bank governors, he was in Paris last week for the Banque de France’s conference on globalization. In his opening remarks he reiterated warnings about the risks facing the world economy in quite blunt terms:
 
“The main risk is that there will be a much more abrupt and disorderly adjustment—a sudden decline in demand for US assets, which produces a substantial decline in the value of those assets, and of the US dollar, and a significant increase in US interest rates”.
 
“The impact of such an adjustment would be felt not just in the United States , but by exporters in other countries who sell to the US , and by emerging-market borrowers who would experience higher interest rates. Such an adjustment would usher in a period of dangerous instability in financial markets and in the global economic environment”.
 
De Rato did not hesitate to warn of the risks of resurgent nationalism:
 
“This raises another risk, one that is not raised explicitly in the questions for this session, but which I think is implicit, and needs to be considered. That is, the risk that in the absence of a coordinated international response to global imbalances there will be not just uncoordinated and disruptive private sector adjustment but also uncoordinated and disruptive measures taken by governments”.
 
The IMF itself had been born out of the experience of the “dreadful decade” of the 1930s when economic and financial dislocation fed nationalist sentiment. You can hear echoes of that today in the United States , Europe and Asia .
 
What is alarming this time, of course, is that while nearly all economists agree on the broad outlines of the diagnosis and cure, and even though such actions would be in each country’s individual self-interest, the constraints on politicians make them unable to take the required policy measures. It will therefore be left to markets, as usual, to sort out the mess.
 
For someone who has sat through recent top-level pow-wows, the conference was somewhat depressing, despite or perhaps because of the star-studded line-up. Essentially, behind all the central bankerly politesse, the Europeans blamed the Americans and the Americans blamed the Europeans and everybody blamed Asia for insufficient action.
 

BCCI Testimony

The Bank of England has released a transcript of the Court Session held on 2 November following the dramatic collapse of the court case brought against the Bank by Deloitte as liquidators for BCCI. Nicholas Stadlen, the bank’s lawyer, said the decision to drop the case was an “unconditional surrender” and represented “the most remarkable and humiliating climb down in the history of English litigation.”
 
The transcript is a remarkable document in its own right – especially the moment when the lawyers drew attention to the fact that the governor of the Bank of England “by coincidence” happened to be sitting at the back of the court and was thus a witness to these extraordinary developments.
 
http://www.centralbanking.co.uk/downloads/bcci_transcript.pdf

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Norman Chan's golfing inspiration

Mervyn King is fond of his sporting metaphors at present, but do sports and central banking really mix? They do in Asia it seems, where the Asian Bond Fund owes its origins to an insight during a round of the noble game of golf. The idea of central banks sponsoring a fund to pool sovereign bonds came to Norman Chan, then deputy president of the HKMA, while was enjoying a round in summer 2002, according to his then secretary Sunny Yung, who is still at the HKMA. The first fund was launched in 2003 and three years later after teeing-off, two funds, holding $3 billion-worth of dollar and local-currency denominated paper, are under managemen

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Greenspan's critics

Amidst the orgy of central bankers’ love-ins celebrating the god-like Greenspan, there is no shortage of harsh critics who say that for all Greenspan's intellectual qualities and deft footwork, he has left both US and world economies highly vulnerable. One of the most trenchant is Joseph Stiglitz, White House economic adviser during the mid-1990s. Interviewed in the New York Times, Stiglitz had this to say:
 
"The legacy he leaves is an America in a much weaker state as a result of a combination of fiscal and monetary policy for which he has to bear significant responsibility," said Stiglitz,
 
Greenspan's “fingerprints” can be found on many aspects of the global imbalances that policy-makers around the world now worry about incessantly.
 
Stiglitz reckons that in endorsing "unnecessary and relatively ineffective" government tax cuts for wealthy Americans in 2001 and supporting them with ultra low interest rates, Greenspan played a part in the collapse of US savings in recent years.
 
What is more, he said, Greenspan’s role in the team that "mismanaged" Asia's crises in the 1990s meant he had a hand in the mistrust of Washington policies that developed in Asia - mistrust that has led to the huge buildup of reserves there.
 
So according to Stiglitz one man was at least partly responsible both for the collapse of US savings and for the rise in Asian savings – gosh

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Top up the punchbowl!

Much fun has been had by many commentators with Bill Martin’s punchbowl. The former chairman of the Federal Reserve, William Martin (1951-1970) defined the central banker as the man who took away the punchbowl just when the party was getting going. Christopher Fildes, the veteran British commentator, could not resist ending his piece by saying: “Greenspan was more likely to let the party run on and then top up the punchbowl”
 
His article in the Evening Standard was headlined simply: “It’s wrong to treat Greenspan as a god”.
 
“Deification may not have been good for him. Bernanke should settle for being respected

Greenspan's golden goodbye

One little–reported exchange during Greenspan’s last testimony to Congress on November 3 concerned the role of gold as a reserve asset. At the cost of irritating some readers, we have to point out that Greenspan took the opportunity to say he expected central banks to continue to hold large amounts of gold. The comments came in an exchange with Senator Paul:
 
Senator Paul: If we don't believe in gold why don't we just get rid of it?
 
Alan Greenspan: It's a very interesting question and it's a question that has been debated at length on rare occasions within government.
 
“The bottom line is that in periods of extreme chaos, it's turned out that gold has been the ultimate means by which transactions have been consummated. It occurred, for example, during World War II that you could only negotiate transactions with gold”.
 
“I must tell you, however, there was a vigorous debate in the Ford administration as to whether or not it made any sense to hold gold stock at all. And the debate ended up with leaving it as it is”.
 
“I would suspect the same psychology exists around the world, and that's the reason why the IMF basically holds the gold that it does, but it's also the reason that other central banks are holding the gold that they do”.
 
“You might be aware, for example, that the Europeans have sold off significant amounts of their gold, but they still hold quite a good deal

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Lazear to succeed Bernanke at CEA?

US President George W Bush may replace Ben Bernanke with Edward Lazear as chairman of the White House Council of Economic Advisers, a report quoted sources as saying.  Unlike Bernanke who specialises in macroeconomic issues, Lazear concentrated on microeconomics at Stanford University and was the founding editor of the Journal of Labor Economics. He has been a professor at Stanford since 1982.

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Greenspan and Ali honoured

Alan Greenspan and boxing legend Muhammad Ali have been awarded the Presidential Medal of Freedom, the highest civil award in the US . The medal was established in 1963 and is awarded for contributions to the security or national interests of the United States , world peace, or cultural or other significant endeavours.
 
Greenspan "has been an extraordinary leader who has made great contributions to America 's economic growth and prosperity," the White House said.
 
Ali, the first three-time heavyweight boxing champion of the world, was called "one of the greatest athletes of all time."

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Greenspan's driving ambition

Meanwhile, Alan Greenspan’s wife has revealed that the Federal Reserve chairman hasn’t driven a car for 18 years.

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Now China has a stability report

Following the fashion, now the PBC has started its own financial stability report.

Financial risks, it said were concentrated in the country's banks, which account for over 90 percent of total financing; reforms of the stock and bond markets had lagged behind, it said.

More than 10 percent of all bank loans were non-performing at the end of June, according to figures from China 's banking regulator -- down 3.95 percentage points from the start of the year but much higher than in developed economies.

The central bank also pointed to fiscal dangers lurking behind the country's inadequate social security fund and high level of local government debt. China 's growing integration into the global economy created risks of its own, the report said.

"There are many unknown factors, including high oil prices, rising interest rates around the world, a weaker dollar and global political disputes," it said.

Because ignorance about China is as great as interest in it, this report will be read more than many of the other financial stability reports laboriously produced by central banks. These are always stymied by the fact that, if there were ever to be a real or imminent threat, the central bank just could not alarm markets by saying so.

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Jim: door-opener for Citigroup

Multi-millionaire Jim Wolfensohn just cannot slow down. At the tender age of 71, when lesser mortals have long hung up their boots, the ex president of the World Bank is joining Citigroup as a “global strategy adviser” (door-opener). He will also become chairman of the Citigroup International Advisory Board (group of door-openers) in 2006. His appointment came a day after Shengman Zhang, 48, a World Bank managing director from China , became chairman of Citigroup's global banking division and head of its public sector group.

Prince, Citibank’s CEO, tells Newsmakers he hopes Jim will help “expand their footprint”. You bet he will. The question is whether Citibank is big enough for Wolfensohn rather than the other way round.

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Why PBC has opened Shanghai head office

As China ’s financial markets are centred on Shanghai , it was important for the central bank to set up a head office there, says People’s Bank of China deputy governor, Xiang Junbo. This was part of a series of far-reaching institutional changes that the central bank has been undergoing. The establishment of the PBOC Shanghai Head Office is an important step to improve the central bank system and to strengthen the role of the central bank in macroeconomic management.

This move has been made after a detailed review of the historical development of other international financial centres such as Amsterdam, London, New York, Tokyo, Hong Kong and Frankfurt. It is openly designed to promote Shanghai as an international financial centres. This has been a “strategic objective” of China ’s policy since the days of Deng Xiaoping.

“International experiences shows that the establishment of central bank headquarters and the establishment of international financial centres benefically promote each other”.

Follow link for a translation of the wide-ranging interview with Xiang Junbo, who is president of the PBC’s Shanghai head office:

http://www.bis.org/review/r051025e.pdf

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Fischer wows Israel

“Six months after first stepping into his new office at the inverted ziggurat-shaped building of the Bank of Israel in Jerusalem , Stanley Fischer can look back with satisfaction. With seemingly little apparent effort, the former deputy managing director of the IMF managed to secure his position as the most dominant decision-maker on the Israeli economic scene, and is moving rapidly to introduce a far-reaching reform aimed at completely transforming the stagnate and inefficient structure of the local central bank”

So starts a rather breathless article in the latest issue of Central Banking by Dan Gerstenfeld on Stanley Fischer’s first semester in the often turbulent position as governor at Israel ’s central bank.

The article makes clear Fischer has ruffled more than a few feathers:

“Although central bank officials refrain from criticising Fischer’s policy publicly, it is clear that not everybody at the Bank of Israel is happy with the suggested change. Behind closed doors, senior officials claim that it will undermine the institution’s autonomy.”

Apparently the Bank of England has been one source of reforming ideas:

”Sources at the committee say that the new structure is influenced mostly by that of the Bank of England, which was chosen as a model. The committee has also recommended adopting another feature of the British law by setting up an administrative committee to supervise the administrative aspects of running the central bank such as the wage policy, budgetary issues, foreign currency reserves management and so on. This committee is to be comprised of the governor, his deputy and five external members”.

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Book by Marion Williams

Dr Marion Williams, governor of the Central Bank of Barbados , has published her third book. The book contains ideas about the policies and approaches which Barbados and the Caribbean might adopt in the new global environment.

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Somalia's has sacked central banker wants job back

Somalia’s sacked central bank governor, Dr Mohamud Mohamed Ulusow, has called for international pressure to be put on the transitional government to give him back his job.

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Interview with Nobel Prize winner Thomas Schelling

Prof. Thomas Schelling of the University of Maryland was recently awarded the 2005 Nobel Prize in Economics, along with Robert J. Aumann. Schelling was interviewed in the Spring 2005 issue of the Richmond Fed's Region Focus magazine. In the interview, he discusses his contributions to game theory, which the Nobel Prize committee cited in its announcement, as well as many other topics.

http://www.richmondfed.org/publications/economic_research/region_focus/spring_2005/interview.cfm

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Central banker named Cricket World Cup director

The West Indies Cricket Board has appointed four new directors to its wholly-owned subsidiary ICC Cricket World Cup West Indies 2007. They are Sir Royston Hopkin of Grenada , Ambassador David Shoul of Antigua & Barbuda, Mr Ken Boyea of St. Vincent & the Grenadines and Ms Jennifer Nero of St. Kitts & Nevis.

Jennifer Nero is a senior director of the Eastern Caribbean Central Bank in charge of the Internal Audit Department.

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BIS appoints Daniel Lefort as general counsel

The Board of Directors of the Bank for International Settlements announced the appointment of Daniel Lefort as General Counsel on Tuesday.

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Quiz on the Nobel Prize for Economics

Test your knowledge of the Nobel Prize for Economics with this five question quiz. Q1. How many women have won the Nobel Prize for Economics since 1969?

http://inhome.rediff.com/money/2005/oct/10quiz.htm

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