NEWSMAKERS
- Will the Rock bring down King?
- No obvious successor
- …and Muto for the BOJ?!
- …and what about the ECB?
- Musical chairs in Canada
- Strauss-Kahn’s ambitions for the IMF
- Yam to step down
- “Legalise cocaine”, says former central banker
- Abed quits the PMA and joins the IIF
- Euro entry could be “mission impossible” – Polish deputy
- Mboweni slates (home-made) fuel “guzzler”
- Garrulous Greenspan
- The coming reshuffle at PBOC
- New Iranian chief
- “Sunrise Two” in Zimbabwe
- Fed stays two governors short
- Farouk el-Okdaj reappointed in Egypt
Will the Rock bring down King?
Central bankers are watching to see if Mervyn King survives the fall-out – both political and economic – of the Northern Rock crisis.
King, whose term expires in June next year, puts up a strong defence of his actions during the crisis but is well aware that many feel that the standing of the Bank of England has been damaged. The blame-game between the Bank, the Financial Services Authority and the Treasury over who should bear ultimate responsibility for the regulatory failures related to Northern Rock, has also not helped the governor’s cause.
King has received support from a constituency he has done little to win over: the City. A straw poll by the Financial Times in early November revealed that the majority of City bankers supported the embattled governor and wanted him to be reappointed. Shame that Sir David Walker, leading City figure and former executive director at the Bank, put the knife in again by saying that “perhaps” many of the difficulties could have been avoided if the Bank had injected more liquidity earlier on.
Earlier, the Treasury said that it would wait until next year before deciding whether to offer King a second term, fuelling speculation that the governor had lost the government’s support.
However, the decision to re-appoint Eddie George, King’s predecessor, was also not made until 18 February 1998, five months before his term expired.
Whatever the final judgement will be on King’s first term as governor, it is clear that he already failed miserably in at least one respect: his self-declared aim to make the Bank’s work “boring”.
It is one thing for the government to want to make a change at the Bank, in an effort to distract attention from its failings; but it is quite another to find a suitable successor.
The leading contender from within the Bank would be deputy governor Rachel Lomax, a quick learner whose charm, management experience and people-skills would count in her favour. Her background in the Treasury would not do her chances any harm either with this control-freak prime minister, while not endearing her to the City. At 62 she is three years older than King and could suffer from being regarded as a “caretaker” governor. She has an Msc in economics but her first degree was in history (Girton, Cambridge).
Other insiders include Charlie Bean, chief economist, and Paul Tucker, executive director for markets. Bean boasts stellar academic credentials, has the ability the mix it with the best on topics of serious economic debate but lacks financial market experience. There’d be little point in swapping King for Bean. Tucker brings bags of market experience and City contacts – he could land a great job with any of a dozen investment banks – and it is rumoured that he advised earlier intervention in the Northern Rock affair.
Few of the outsiders who were in contention five years ago would be in the running today, as they have moved on both in age and in interests; these include Sir Howard Davies, former deputy governor and head of the FSA, Gavyn Davies, former Goldman Sachs economist and head of the BBC, and Sir Andrew Crockett, former head of the BIS and now with JP Morgan.
Former MPC member Richard Lambert, now head of the Confederation of British Industries, is also being mentioned. Although as a former editor of the Financial Times he would certainly know what questions to ask, he has neither the economic qualifications nor the core banking experience that are needed.
Those who believe the Bank needs a strong City figure to rebuild its credibility are looking to people like Stephen Green, chairman of HSBC. Oxford and MIT-educated Green has had spells of government service with the UK ministry of overseas development, consultancy with McKinsey as well as long experience in money and capital market operations as head of HSBC’s global treasury for many years.
However, the short answer is, there are no obviously outstanding candidates to succeed Mervyn King.
One central banker who is definitely on the way out is the Bank of Japan’s Toshihiko Fukui. His term comes to an end in March next year.
Japan’s recent political turmoil will only increase the contention around the issue of the central bank’s independence. Indeed the issue of who will be the next governor could well become a political football.
Toshiro Muto, one of the BoJ’s current deputy governors, has for years been the frontrunner to take over. However, the appointment requires the assent of both houses of the parliament, and the opposition Democratic Party of Japan, who claimed victory in July’s upper house elections, have made no secret of their objections to him taking over. The party’s principal objection is that, before joining the central bank, Muto was a lifelong finance ministry bureaucrat and that his appointment to the top job at the BoJ could threaten the central bank’s cherished independence.
Their latest position is that they want prospective candidates to appear before a parliamentary committee for an “interview”.
With the political situation fluid, it seems likely that the appointment will be delayed until February (five years ago Mr Fukui was nominated only on February 24 2003).
Other names are being bandied about in case a deadlock is reached. Kazuo Ueda, a professor at Tokyo University who sat on the central bank’s board until 2005, has academic credentials and strong international standing – a qualification for the job that the Democratic Party has emphasised. Central bank “insiders”, Yutaka Yamaguchi, a former deputy governor, and Kazumasa Iwata, another current deputy governor, could be in the running. Even Eisuke Sakakibara, former vice minister of finance for international affairs – the original “Mr Yen”– is being mentioned. But it still looks like Muto.
The appointment of a new governor will be accompanied by a reshuffling of many other of the top jobs at the BoJ, including deputy governors and the director in charge of international affairs.
While we’re at it, we have to remind readers it is not all that long before Jean-Claude Trichet’s term as ECB president expires in 2009. Most people for some reason think that it will be Italy’s turn next – with Mario Draghi, currently head of the Banca d’Italia, the favourite. Coming up fast on the inside track is Lorenzo Bini Smaghi, who has relished the challenge of taking on Europe’s politicians over who is responsible for exchange rate policy in the eurozone – just the kind of battle the president of the ECB has to be prepared to fight. Certainly, Bini Smaghi has been one of the most vocal members of the governing board in recent years. But at only 51 he is still a little on the youthful side.
The Italian candidate could face stiff competition from the German contingent unlikely to be pleased at the prospect of being out-manoeuvred for the third time running (especially with Frenchmen now heading the IMF, the WTO and the EBRD as well as the ECB). In that case, one might expect to hear the name of Axel Weber (another youngster aged 50) more often in course of 2008.
It was a case of revolving doors between the central bank and the ministry of finance as Mark Carney was appointed as the next governor of the Bank of Canada.
Carney joins the central bank from the Department of Finance where he served as senior associate deputy minister since 2004. Shortly after Carney’s appointment, the deputy governor of the central bank, Tiff Macklem, was appointed as Carney’s successor at the finance ministry.
At 42, Carney will be the youngest central banker among the Group of Seven nations when he takes the reigns on 1 February 2008. He is, however, not a complete outsider to the Bank of Canada, having served as deputy governor responsible for international issues for little more than a year in 2003 and 2004.
Carney, who holds a bachelors degree from Harvard University and a PhD from Oxford (both in economics), is regarded as somewhat of a “whiz kid” in Canadian finance circles.
Before joining the public sector, he worked at Goldman Sachs for 13 years. He began as an analyst in 1988 in London, later working in Tokyo and New York before becoming managing director of Goldman’s investment banking division, based in Toronto.
Carney succeeds David Dodge, who has had a very successful record as governor since 2001.
Strauss-Kahn’s ambitions for the IMF
The new managing director of the IMF, Dominique Strauss-Kahn, is determined to carve out a bigger role for the IMF. In French eyes, a key part of his mission is to “democratise” the IMF, giving more voice to important new players such as China, India and Russia. He also has to reform the organisation. DSK, as he is known, will need all his persuasive skills – with a helping hand from his TV personality wife Anne Sinclair – in putting across his ideas to hard-nosed US policy chiefs.
Some observers in Washington point out that at this point France’s record of achievement in the organisation has been evident more in providing candidates for the top job than in any success in reform programmes.
This may now change if DSK can exploit the opportunities provided by the growing anxiety about global financial stability to lever the Fund into a more strategic role. But DSK will have to start with the unpleasant business of shedding staff – creditor countries are insisting on it. But the prospect for a rapid and disorderly unwinding of global imbalances will create a demand for coordination that only the Fund is in a position to supply.
Ironic that the Fund, an institution dedicated to the objective of greater global stability, only thrives in conditions of acute instability.
A key early appointment will be to replace Michael Deppler on his retirement as head of the European department. Deppler, 64, has been director of the department since it was created in 2003 following a review of the organisation of the area departments by Jack Boorman, special adviser to Horst Kohler, the then MD. Internally there is Moshin Kahn, a former head of the IMF institute, who now heads the Middle East and central Asia department. Carlo Cotarrelli, currently a deputy director, would be an obvious choice.
Or DSK could call on an old friend such as Jean Pisani-Ferri, currently director of the Breugel Institute, a European economics think tank whose name is intended as a tribute to the Flemish painter and also stands for the Brussels Global and Economic Laboratory.
Joseph Yam, the chief executive of the Hong Kong Monetary Authority, will also step down in 2009.
Yam, who is reportedly the highest paid central bank chief in the world, has headed the HKMA since its 1993 inception. He will be 60 next year, the official retirement age of civil servants in the province.
A well-respected figure in the central banking community, Yam won plaudits for his role in handling the 1997 Asian financial crisis.
Norman Chan, a former deputy chief executive at the HKMA and an ally of Donald Tsang, the island’s chief executive, is an early favourite to replace Yam.
“Legalise cocaine”, says former central banker
A former member of the board of the Colombian central bank, Salomón Kalmanovitz, thinks the use of cocaine should be legalised and that the US government should have a monopoly and a monopsony in the industry.
Kalmanovitz, who served on the central bank’s board from 1993 to 2005, also hopes the Democrat-run American Congress will be susceptible to his radical proposals.
In a column for a Colombian weekly newspaper Kalmanovitz pointed out that, in addition to the well-documented political strife and security problems, the drug trade had led to a number of macroeconomic distortions: “[T]he affluence of black dollars ‘strengthened’ the peso, discouraged exports of all kinds, including coffee, and as such, slowed growth,” he argued. “Workers who had picked beans left to work in the coca fields, where they were better paid.”
He added: “The values of just capitalism, based on hard work, rational organisation and innovation have been displaced by the principal that crime pays very well, while hard work is for idiots.”
“The only way to reduce production to a manageable level is through the legalisation of consumption, plus a monopoly on the buying and selling of cocaine and heroin on the part of the US government,” he argues.
While all of this may sound like something from Aldus Huxley’s A Brave New World, Kalmanovitz hastens to add that users would have to “acquire the drug with a prescription, and, if he is an addict, submit himself to treatment.”
“By playing with the prices,” he argues, “the cursed profit can be eliminated.”
Kalmanovitz concludes by noting that, “although no politician dares to suggest legalisation”, the “Democratic administration in the United States would be open to changes in policy toward treating drug use as a public health problem rather than a criminal one.”
Abed quits the PMA and joins the IIF
George Abed, the governor of the Palestine Monetary Authority (PMA), has resigned from his post citing his son’s critical illness as the reason for his departure.
Abed was appointed governor of the PMA in April 2005, having previously been for many years with the International Monetary Fund. In February the following year, the Palestinian economy was seriously affected by the victory of the Islamist Hamas movement, which was followed by aid and payments to the Authority being frozen by Israel, the United States and the European Union.
Abed has since relocated to Washington D.C., where his family lives, to join the Institute of International Finance, a global association of finance firms, as special adviser to Charles Dallara, the managing director, and director of the Africa and Middle East department. He will also continue to be associated with the PMA as an unpaid adviser.
Commenting on a possible successor at the PMA, Abed told Central Banking that he had recommended Jihad Al-Wazir, a former deputy finance minister, to Mahmoud Abbas, the Palestinian president, and Salam Fayyad, the prime minister.
“Al-Wazir has been with me for two years and he has been closely involved in the restructuring process. I hope he will be appointed soon,” Abed said.
Euro entry could be “mission impossible” – Polish deputy
Krzysztof Rybinski, the deputy governor of the National Bank of Poland, thinks central and eastern European (CEE) countries have missed an ideal opportunity to enter the euro on the back of a global tailwind of disinflation.
Speaking at a conference organised by the central bank in Warsaw, he suggested that “joining EMU may become mission impossible for many CEE countries in the next few years.” The deputy governor’s grim prediction is based on his belief that the “tailwind of globalisation [and lower inflation] appears to be fading.”
“The window of opportunity created by global inflation tailwind might have closed in 2007,” he added.
It is understood that Poland’s target for euro entry is now 2012, and the Czech Republic has no firm date. Polish public opinion is deeply divided on the issue but probably on balance in favour.
Mboweni slates (home-made) fuel “guzzler”
The normally diplomatic Tito Mboweni, the governor of the South African Reserve Bank (SARB), made few friends with his rude remarks about General Motors’ truck-cum-sports-utility-vehicle, the Hummer, which he described as that “terrible thing”.
It was, he said, “a guzzler” that would not do world oil prices any favours.
His comments are unlikely to have gone done well with Trade and Industry minister, Mandisi Mpahlwa, who is proud of the fact that General Motors started manufacturing Hummers at its major production plant in the South African coastal city of Port Elizabeth little over a year ago.
Former Fed chairman, Alan Greenspan, remains more than willing to share his thoughts with the ever-eager press – on everything from the health of the American housing markets to the fiscal policies of the Bush administration.
The Maestro came out in strong support of his successor, Ben Bernanke, and his handling of the first stage of the credit crisis. Describing the credit market turmoil as “an accident waiting to happen,” Greenspan dismissed suggestions that he would have cuts interest rates more aggressively saying: “I am not certain I would have done anything different.”
Greenspan’s other remarks, however, have gone down less well with the current generation of central bankers. During his time at the Fed, Greenspan often dismissed the presence of a US housing bubble, preferring the more opaque description of “froth”. Now he apparently thinks there has been a bubble, but that he had nothing to do with creating it.
Greenspan, whose willingness to “talk-up” the economy and cut interest rates in times of distress became legendary, also sounded decidedly bearish tones on the effects of the credit crisis, saying investors should prepare for a possible Act Two. One of most bearish comments about the future of banking hit the headlines on one of the most difficult days in the Northern Rock crisis in Britain.
This from the man who adopted the Dow Jones standard for monetary policy and probably did more than any other central banker to increase the quantum of “moral hazard” in the system which so worries people like Mervyn King.
Just at what point, Newsmakers wonders, will central bankers lose patience with Greenspan and his potentially destabilising remarks?
Zhou Xiaochuan, the governor of the People’s Bank of China, is likely to leave his job as part of a wide-ranging reshuffle following recent top Communist party meetings. A diffident, almost donnish figure, Zhou joined the central bank in January 2003. His term as governor is for five years, so if he were to leave, it would probably be in the first three months of 2008 (probably March). Those thought of as possible successors include Guo Shuqing, the chairman of China Construction Bank, and Shang Fulin, the chairman of the China Securities Regulatory Commission.
The recently appointed governor of Iran’s central bank, Tahmasb Mazaheri, has wasted no time in joining the country’s president, Mahmoud Ahmadi-Nejad, in attacking the United States and the dollar.
The former economy minister, who was appointed as head of the central bank in September, announced one month later that the country had completed it process of diversifying its dollar reserves to other foreign currencies.
Mazaheri also slammed US sanctions on Iranian Islamic banks, saying they had no legal basis. The governor added that the “world is a big place” and that the banks would simply take their business elsewhere. The sanctions, he said, “are more psychological warfare.”
The defiance of Gideon Gono, the governor of the Reserve Bank of Zimbabwe, knows no limits. Blaming “cash barons, smugglers and illicit dealers” for the country’s cash shortage, the governor has promised in November to issue a second batch of new banknotes.
It will be the second time in as many years that the Zimbabwean authorities introduce new banknotes to replace the inflation-ravaged country’s largely worthless circulating currency. Zimbabwe lopped off three zeroes from its currency in July last year and phased out old notes within three weeks in a programme dubbed “Sunrise”.
Making his disdain for critics of the approach clear, Gono said: “Some have said we are in a hyperinflationary environment and can therefore not bring in a new currency. Nothing could be further from the truth.”
“The public, as well as the financial sector, are hereby forewarned that Sunrise Two is imminent,” he added. “Last time we removed three zeroes but they’ve returned. Now we are determined not to allow them to return.”
In August this year, Gono was reportedly barred from entering the United Kingdom, with the British home office arguing that allowing him entry would give him “a platform to justify [his] actions.” Gono’s closeness to the country’s controversial president, Robert Mugabe, has earned him the nickname of “Mugabe’s private banker.”
The Board of Governors of the Federal Reserve will remain short two of its seven members. Chris Dodd, the chairman of US Senate’s banking committee, has no plans to move pending nominations to the Board onto the senate floor, he said on 3 October.
In addition, it looks as if one of the nominees, Larry Klane, could face intense grilling from senators over the exposure of Capital One, a Virginia-based bank of which he is an executive vice-president, to risky mortgage products now under scrutiny from regulators after the summer’s credit woes.
The nominee for the other remaining vacancy is Elizabeth Duke, chief operating officer of Towne Bank, another Virginia-based lender. Current governor, Randall Kroszner, whose term expires on 31 January can remain in office after his term expires as long as no one else is appointed in his place. If the Board lost one more governor its decision-making would start to be seriously impaired as decisions on lending through its discount window requires the approval of five governors.
Farouk el-Okdaj reappointed in Egypt
The modernising governor of the Central Bank of Egypt, Farouk el-Okdah, has been appointed to a second four-year term. In the past four years Okdah has not only overseen the creation of an interbank foreign exchange market but also embarked on a wide-ranging and much-needed modernisation programme for the central bank. The currency reform in 2004 paved the way for full convertibility of the Egyptian pound, and the exchange rate has been stable. Egypt’s net foreign reserves have more than doubled to $31 billion.
Previous issues of Newsmakers can be found at
http://www.centralbanking.co.uk/newsmakers/index.htm
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