• Fukui’s Grand (Empty?) Gesture
• Greenspan Finds New Licence To Print Money
• Weber Visits Cambridge
• Ferguson Quits
• Don Kohn To Succeed?
• Mrs Zeti To Stay
• But Basci To Replace Serdengecti In Turkey?
• And Ordonez For Spain?
• New Man For Libya
• Sarbanov Suspended
• Balcerowicz In New Political Rumpus
• Search For Successor To Balcerowicz?
• Compensation Claimed From Bank Of Italy
• Riksbank First
• Smith To Be Bank Of Canada Research Fellow
• King Draws Mixed Reviews
• Mboweni Slams The Fund
• China Will Diversify Without Reducing Dollar Assets, Says Zhou
• Bernanke Sticks To Fed Line On Asset Bubbles

Fukui’s Grand (Empty?) Gesture

If monetary policy is managing expectations, as the current doctrine has it, Toshihiko Fukui, the governor of the Bank of Japan, is a champ: the ending of the so-called policy of quantitative easing (QE) was clearly signalled as much as six months in advance or more. Visitors to the BOJ’s Nihonbashi headquarters were being told as early as last October that as price deflation was being conquered QE would be ended probably in the first week of March 2006 – and so it has been. The trouble is, that while everyone seems to think this is a momentous step, not just for Japan but for the world, nobody has ever understood this policy or been able to show that it has had any effect at all, and nobody knows what impact its ending will have, if any. Some observers predict no effect; others say it will lead to the end of the world as we know it, by pulling the rug out from under the financing of the US deficits.

QE was in truth largely a fantastic public-relations smokescreen to show the world that the BOJ was “doing something”. In this Fukui has been spectacularly successful. He is seen as the best communicator the BOJ has had for many years. No wonder he’s smiling. The markets are so far giving him the benefit of the doubt. In fact Fukui’s confident smile is having a much bigger effect in cheering people up and thus on the Japanese economy than any amount of QE – the central bankers’ equivalent to the “placebo effect” of drugs in medical treatment. If you believe it will do you good it probably will.

But it will be quite another matter when he starts to raise interest rates – and only then can the BOJ really claim that monetary policy has returned to normal. That is something Fukui understands only too well.

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Greenspan Finds New Licence To Print Money

Alan Greenspan, recently retired as Federal Reserve chairman, signed a deal on Tuesday to publish his memoirs with the Penguin Press. "It is a singular honour for the Penguin Press to publish Alan Greenspan, who has spent his extraordinary career reckoning with how the world really works," said Ann Godoff, Penguin president and publisher. "His book will be about what we can know, what we can't know and what we should do about it."

Penguin, a unit of Pearson plc, said it would publish Greenspan's book in 2007, but gave no details on how much he would be paid or whether the former central banker would use a ghost-writer. Publishing industry sources were quoted in the press as saying bids had topped $8m. The New York Times, which obtained a copy of Greenspan's ten-page book proposal, said it starts with an anecdote about how he heard of the attacks of 11 September while flying from Zurich to Washington. The book will also discuss his opposition to economic protectionism, his explanation of the "conundrum" of long-term interest rates and his view that China will play a major role in the global economy.

Ferguson Quits

Following Greenspan’s departure, Roger Ferguson, Jr. has decided to call it quits also, resigning as vice-chairman and as a member of the Fed’s Board of Governors with effect from 28 April. Ferguson, who has been a member of the board since November 1997, will not attend the 27-28 March meeting of the Federal Open Market Committee. This will deprive the board of one of its most sagacious members.

Ferguson had made many contributions to policymaking during his eventful term. He led the Fed's first response to the 11 September terrorist attacks, was a consistent advocate for increased transparency of monetary policy, and, as Ben Bernanke has pointed out, had represented the Federal Reserve in many international fora.

The story about how Ferguson took the lead on 11 September, when he found that he was the only one of the Fed's five governors in Washington as the attacks occurred, has passed into legend. He immediately began to draft a statement with members of the Fed staff. It had to be concise and focused. "The Federal Reserve system is open and operating. The discount window is available to meet liquidity needs." He convened a conference call at 11:30am with most of the Fed's 12 regional bank presidents and their chief operating officers. The group agreed the statement would send the right message of measured calm. It had the desired effect.

Ferguson, 54, was first appointed to the board by Bill Clinton to fill an unexpired term ending in January 2000. He was then appointed by George W. Bush to a full term that expires in 2014.

Why did Ferguson quit? What about the fact that he failed to get the top job as Greenspan's successor? Most observers doubted that was the reason. Reports in the Washington Post and the New York Times summarised the prevailing view. "As a Democrat, [Ferguson] was never a serious candidate to succeed M. Greenspan," reported Uchitelle in the Times. In the Post, Henderson said much the same, observing that "during the 2004 presidential race, many analysts viewed Ferguson, a Democrat, as a strong candidate to succeed Greenspan if John Kerry were elected president."

After nine years it would be natural if he felt that he had done his stint at the relatively low-paid if influential job at the Board of Governors.

What is clear is that it gives the White House another chance to put somebody of a congenial nature in a strategic role in the Federal Reserve.
 

Don Kohn To Succeed?

One contender – though not necessarily all that a congenial one for the White House – would be Donald Kohn, who long served as one of Greenspan’s most trusted lieutenants. Kohn's connection with Alan Greenspan would reinforce the theme of continuity that both the administration and Bernanke are stressing. Don Kohn would also be a popular choice among many central bankers, where he has long been a well-known figure (though he is known to be privately quite critical of some aspects of the ECB).

Alternatively, the White House may try to attract a top academic, as when Bill Clinton tapped Alan Blinder to become vice-chairman in 1994. However, it is unlikely that people like Martin Feldstein and Glenn Hubbard, who have only recently been in the running for the top job, would be interested. As one Fedwatcher put it "There aren't too many heavyweights who just want to be No. 2."

Ferguson’s announcement came just days after the US Senate confirmed two new presidential nominees, Kevin Warsh and Randall Kroszner, to the Fed’s seven-strong board of governors.

The vice-chairman’s departure will mean that the full board will have been selected by President Bush.
 

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NEW PUBLICATIONS

The March issue of The Financial Regulator journal includes an exclusive interview with Tommaso Padoa-Schioppa, the new chairman of the trustees of the International Accounting Standards Board, who explains how the board has brought the US and Europe to the brink of convergence.

But Basci To Replace Serdengecti In Turkey?

A press report on 9 March said a replacement has been chosen for Sureyya Serdengecti, after his term as governor of the Turkey’s central bank expired on 13 March. However, a report on the Turkish Daily News website quoted the deputy prime minister, Abdullatif Sener, as denying a newspaper report that a new central bank governor had been chosen.

Zaman.com said Professor Erdem Basci will take over as the new governor for the central bank. It also said he would be the youngest ever person to head Turkey’s central bank, at 40, once the official procedures are complete. “TV channels, news agencies and Internet sites announced Zaman's headline as ‘breaking’ and Reuters offered it to its news subscribers yesterday upon the announcement,” Zaman.com said. “Erdem Basci appears to be the most suitable person to maintain relations with the International Monetary Fund (IMF) and the floating foreign exchange rates. It is clear from this government decision to appoint Basci as the central bank’s new head that the bank will take into consideration the social demands to form its common policies, while avoiding the tendency to populism,” a source close to the government was quoted as saying in the report.

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And Ordonez For Spain?

The leader of Spain’s People's Party (PP), Mariano Rajoy, said on 8 March that he does not agree that Miguel Angel Fernandez Ordoñez, the current secretary of state for internal revenue, should be the next governor of the Bank of Spain. Rajoy said this was because "that post should not be occupied by a politician with a party card." According to Rajoy, who was quoted by The Spanish Herald, the Zapatero administration "is excessively politicising the institutions, which is very foolish and a great error."

According to the report, the economics minister, Pedro Solbes, plans to propose Fernandez Ordoñez's nomination as a board member of the central bank, a step towards his becoming governor. Rajoy warned, "There are some things outside the political game, and one of them is the governor of the Bank of Spain. To politicise the figure of the governor of the Bank of Spain seems total nonsense to me, and an enormous mistake," he said.

Solbes then confirmed that no decision had been made. The only thing on the agenda for the moment was for the Cabinet to decide whether to confirm Fernández Ordónez's nomination as a board member. "Beyond that, everyone is entitled to assume whatever they want," he said. He went on to say that "the governor of the Bank of Spain until July is called Jaime Caruana," and only when his term in office is drawing to a close will discussion of a replacement take place.

Solbes said it would be up to the prime minister to propose a successor to Caruana, who was appointed by the former (PP) government.

Solbes also said there were no plans at present to reorganise the board of the Spanish central bank, which after Spain's entry into the eurozone has ceded control of monetary policy to the European Central Bank. Separately, Rajoy said he was against a "card-carrying politician" such as Fernández Ordóñez taking the reins of the central bank

New Man for Lybia

Libya's top legislative and executive body has appointed Farhat Omar Bin Guidara as the new central bank governor, replacing Ahmed Mohammed Moneisi. Moneisi will take the job of finance minister, replacing Mohammed Ali al-Houeiz.

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Sarbanov Suspended

Kyrgyzstan’s central bank chairman, Ulan Sarbanov, has been temporarily removed from office due to a legal suit filed against him. According to a press release, President Kurmankek Bakiyev suspended Sarbanov until the end of the trial. Maksatbek Ishenbaev, Sarbanov's deputy, will be the acting chairman. Sarbanov, a distinguished banker who has been energetically seeking to modernise the central bank, was earlier sued on charges of misconduct and of giving $420,000 as a bribe to the then president, Askar Akayev, charges he denies. A former finance minister, his deputy and a number of senior civil servants were also accused in the same lawsuit.

A statement posted on the central bank’s website on 2 March said: “By the decree of the president of the Kyrgyz Republic of 1 March 2006 No 89 the governor of the board of the National Bank of the Kyrgyz Republic, Ulan Sarbanov, is temporarily discharged from the occupied position. According to the same decree temporary execution of responsibilities of the NBKR's governor is assigned to Maksatbek Ishenbaev, deputy governor of the board.”

In a separate development, former governor Marat Sultanov has become speaker of the Kyrgyz parliament. Sultanov has been deputy of the two previous Kyrgyz parliaments. Sultanov was head of the central bank from 1994 to 1998 and also held the post of finance minister from 1998 to 1999.

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NEW PUBLICATION

Central banks invest in riskier assets

Just under half of the central banks responding to a recent survey have increased their investments in “new” asset classes in the past year. These central banks control reserves worth more than $1 trillion. One-third of the central banks surveyed are now prepared to invest in A-rated bonds and a quarter invest in mortgage-backed securities. Eight per cent of central banks responding to the survey now hold equities as part of their reserves.

These are some of the important findings of a survey of reserve managers from 56 central banks (who control reserve assets worth $1.9 trillion) carried out between September and December 2005, which forms the first chapter in RBS Reserve Management Trends 2006, a new book from Central Banking Publications.

http://www.centralbanking.co.uk/publications/books/rmt06.htm

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Balcerowicz In New Political Rumpus

Leszek Balcerowicz, the governor of the National Bank of Poland, has rejected accusations that he broke the law by excluding a government official from a regulatory meeting on the deal by UniCredit, an Italian lender, to buy BPH, a Polish bank. Balcerowicz described charges levelled against him by government officials as "grotesque," and said he was only defending the rule of law as stipulated in the constitution. He was quoted by AP as saying that his decision to exclude the deputy finance minister, Cezary Mech, from the banking supervisory committee's meeting on UniCredit was justified. Balcerowicz apparently excluded Mech for being biased in the deal. Mech has been a frequent critic of UniCredit's takeover of BPH, according to AP.

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Search For Successor To Balcerowicz?

President Lech Kaczynski announced that he will begin to search for a successor to Leszek Balcerowicz, who is nearing the end of his term as head of the National Bank of Poland (NBP). He claimed that there was no shortlist of candidates ready yet. Previously, in an interview for Forbes, he said he would turn to academics from the Warsaw School of Economics. "I want to turn to the 'non-Balcerowicz' part of them. They are people who very often have been much better in economic forecasts, but lacked impact. I want to give them this power," said the president on Friday. "There will be meetings with economists from Monday. Of course, please do not treat every economist I meet as the next NBP head," he added.

During his electoral campaign, Kaczynski announced that he would not submit Balcerowicz's candidacy for a further term in office.

This was widely seen as a concession towards supporters of Self Defence (Samoobrona), whose leader Andrzej Lepper has long been shouting "Balcerowicz must go." The head of Law and Justice (PiS) ,Jaroslaw Kaczynski, is also known for his antipathy toward the current NBP head.

What is clear is that Poland will be the loser if the president succumbs to this kind of political pressure.

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Riksbank First

On 15 March, Sweden’s Riksbank will introduce new and more secure 50-krona and 1,000-krona banknotes. The new banknotes will have largely the same appearance as the older versions, but will have several new security features making them more difficult to counterfeit. The older versions of these banknotes will continue to be legal tender.

The Riksbank is the first central bank in the world to use the security feature of motion (a moving image in the striped band) used on the new 1,000-krona banknote. When the banknote is tilted, the picture in the striped band appears to move. In addition, both the 50-krona and 1,000-krona banknotes have been equipped with a foil strip and a see-through picture. Further information and pictures can be found on www.riksbank.se, under the heading "Notes & coins".

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Smith To Be Bank Of Canada Research Fellow

Professor Gregor Smith of Queen's University is the Bank of Canada’s research fellow for 2006. Professor Smith, one of the leading members the Canadian economics community, has earned international recognition for his work in empirical macroeconomics, open-economy macroeconomics, and economic history.

"Professor Smith is an outstanding economist who continues to make an important contribution to leading-edge research," said David Dodge, the governor of the Bank of Canada. "The bank is proud to support an economist of his calibre who has had such a far-reaching impact as a researcher, teacher, and leader in the field of economics in Canada." The central bank's fellowship programme is designed to encourage leading-edge research and to develop expertise in Canada in a number of areas critical to the central bank's mandate.

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King Draws Mixed Reviews

Mervyn King’s views on how best to reform the Bretton Woods institutions and his attacks on the value of meetings of international policymakers have drawn mixed reviews.

Many welcomed his candid criticisms:
"If the mission of the Fund is not examined and the institution revitalised, it could slip into obscurity," he said in the speech in New Delhi. "The Fund urgently needs to ask what its main purpose is."

The Bank of England governor noted the IMF was set up more than 60 years ago to promote international monetary cooperation. "In reality, though, the Fund is not playing that role at present. Its surveillance lacks focus. Its lack of day-to-day independence hampers its ability to comment effectively on divergences between stated objectives and actual policies," King said. "And it lacks the legitimacy to be an effective secretariat."

Newsmakers hears that some European officials were less than impressed with King’s remarks, especially when set against Gordon Brown’s leading roles in the Fund and “G” groups. Many national governments, especially in Europe, want to maintain their grip on the Fund’s decision making through the present executive board structure. Europe is plainly going to have to give up some of its voting power, but with the United States now looking to the IMF for support in its efforts to get China and other Asian countries to revalue their exchange rates, the Fund seems likely to escape the root-and-branch reform that King has rightly called for.

Click here to read the speech “Reform of the International Monetary Fund”

http://www.bankofengland.co.uk/publications/speeches/2006/speech267.pdf

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Mboweni Slams The Fund

The governor of the South African Reserve Bank, Tito Mboweni, slammed the IMF and World Bank in late February for what he called their high handedness and know-it-all approach when dealing with developing countries. In a speech at Pretoria University, Mboweni said the Fund especially required radical reform to give developing countries a voice in decision-making and end the current “embarrassment”. Mboweni also criticised the process by which the head of the Fund is always nominated from Europe while the World Bank president is always a US citizen.

"Its high-handedness, know-it-all approach an almost patronising attitude to developing countries, needs to change," said Mboweni who has been at the held of the South African central bank for over five years. "The IMF and the World Bank need to change very radically, particularly the IMF," he told academics and diplomats. "We cannot shout at them from a distance ... we have to participate ... but if we are going to participate in these institutions we must participate as equals," he added.

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China Will Diversify Without Reducing Dollar Assets, Says Zhou

The People’s Bank of China’s governor, Zhou Xiaochuan, said in an interview that the country will not reduce its US dollar foreign exchange assets but intends to adjust the mix of its reserves. “Some people worry that the central bank will reduce its overall US dollar (reserve) holdings, but that's not going to happen,” he was quoted as saying by the official Shanghai Securities News.

“China's foreign exchange reserves management until today has been very good, without any problems,” he added. Zhou did not say how the PBOC may adjust its foreign exchange reserves, but his remarks clearly indicate that the dollar share in new reserve accumulation will be less than its current average share. It is not necessary to sell dollars to diversify.

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Bernanke Sticks To Fed Line On Asset Bubbles

The Federal Reserve has to pay close attention to asset prices because they affect the economy, according to the Fed chairman, Ben Bernanke, but it is not a good idea for the US central bank to try to affect their prices directly. "Asset prices are central to monetary-policy making. They play a role in the transition process and they are important for our forecasting and thinking about the economy. But I don’t think the Fed ought to intentionally try to manage asset-price movements," Bernanke said in response to audience questions after a speech at Princeton University on Friday.

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