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Welcome to the Central Bank Insider Archives. We are pleased to be able to provide you with this intimate look at central banking events, policies, and staff. Commentary is updated as available (generally bi-weekly) and archived monthly. The source commentary "Newsmakers" is reprinted at USAGOLD with permission and by courtesy of Central Banking Publications Ltd.
21 August 2000
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NEWS THIS WEEK
Central Banking Training Courses / Seminars
Jobs in Central Banking
Happy Birthday at the Bundesbank!!
IMF upgrades
Czech growth forecast
Irish inflation at 6.2%
UK inflation
likely to rise above target,
says BoE
RBA leaves
way open for more interest rate rises
Don Brash keeps rate unchanged despite interest rate spike
Reddell heads financial markets department
Bulgaria's dollarisation debate
Bank of Estonia uses foreign asset manager to enhance risk management
Sharp deterioration
in Fiji's economy
Bank of Sudan reforms banking system
PAYMENT SYSTEMS CORNER
Macedonia payment systems tender
Farewell to Wendelin at CPSS
Bank of Israel payments system review
BoE says XML language will cut trading costs
CURRENCY CORNER
Banks to get euro banknotes early
BIS responsible for banknotes
Bank of Canada offers training in detecting note forgeries
Advanced technology in New Zealand note
New Albania coinage
WEBSITE CORNER
National Bank of Romania
Saudi Arabia Monetary Authority
Palestine Monetary Authority
PAPERS OF THE WEEK
Monetary Union in Iceland - Willem Buiter
Central Banks in European Emerging Market Economies in the 1990s
Estimating the Demand for Money in Namibia
Eurosystem Monetary Targeting
New York Fed economic policy review
Financial Stability in the Euro Area
Department for International Development - banking systems in
low income
countries
BOOKS OF THE WEEK
Quo Vadis Euro? The Cost of Muddling Through (D. Gros)
Open Issues in European central Banking (book by L. Bini-Smaghi
and D. Gros)
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A few places left on central
banking training courses
August 2000
We have a few spaces left on
Central Banking Publications Autumn seminar programme (Christ's
College, Cambridge, 10-14 September). But it is selling out fast.
We allocate places on a first-come first-served basis. Please
check out our website for more details on the three courses:
(1) 4 day course on advances in central bank risk management -
25 places, 4 places left
(2) 4 day course on setting / promulgating global regulatory standards
- 25 places, 4 places left
(3) 3 day course on information management / librarian in central
banks - 25 places, 2 places left
If you cannot come for the full course it is possible to come for certain days for a discounted fee. To arrange that, you will need to email me at BWELLER@CENTRALBANKING.CO.UK
For information, please see:
http://www.centralbanking.co.uk/conferences.htm
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Jobs in central banking
August 2000
We are now accepting job adverts for positions in or related to central banking in the public or private sector. Please send to BWELLER@CENTRALBANKING.CO.UK
Opportunities in Global Equity Portfolio Management
Norges Bank, Noway's central bank, is in the process of expanding its investment management organisation. On August 1 an office in London was established. The office will play a vital role in equity management. They are currently looking to employ two additional persons at this office. The positions will offer unique opportunities for both professional and personal achievement, with substantial responsibilities. Ideal candidates are expected to fill key roles in the equity department, and will have a minimum of five years' direct experience with a proven track record. They are looking for dedicated professionals for the following positions:
Global Sector Analyst - Business Services
The successful candidate will be responsible for research coverage of the business services' sector and will have the sectors' portfolio management responsibilities. The candidate will currently be a portfolio manager with extensive experience, and will be expected to contribute immediately.
Global Sector Analyst - Telecommunications
The successful candidate will
be responsible for research coverage of the global telecommunications
industry and will have sector portfolio management responsibilities.
He or she will work in a team or three sector portfolio managers.
The candidate will currently be an analyst or industry professional.
Please send CVs to Norges Bank Investment Management, Ryder Court,
14 Ryder Street, London SW1Y 6BQ, no later than September 8, or
by email to yngve.slyngstad@kap.norges-bank.no For questions,
call Yngve Slyngstad - Tel: + 47 2231 6194, or see website at
http://www.norges-bank.no
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Happy birthday at the Bundesbank!!
August 18
Professor Hans Tietmeyer was born 18 August 1931 and last Friday celebrated his 69th birthday. He was president of the Deutsche Bundesbank 1993-99 and Chairman of the Group of Ten Central Bank Governors 1994-99.
Ernst Welteke, the current governor
of the Deustche Bundesbank, is 58 years on August 21. Welteke
will be interviewed in the next issue of Central Banking. Please
email me any questions to put to Mr Welteke!
**************************************
IMF upgrades Czech growth
forecast
August 14
In its yearly Article 4 review of the Czech Republic, the International Monetary Fund predicted accelerating growth, but urged the government to strengthen bank supervision and reform the pension and health-care systems. The IMF raised its 2000 Czech GDP growth forecast to 2-2.5% - from a target of 1.5-2% in May - and said it foresaw growth of 3-3.5% in 2001. The fund also urged the Czech National Bank to take "necessary measures" - including intervention - to prevent the Czech crown from rising too fast in response to strong inflows of foreign investment.
The fund's board also repeated
its concerns about proposed amendments to the law governing the
CNB, saying they could threaten the institution's independence.
The Czech Senate struck a law down on August 4 that would change
the way the CNB governing board members are chosen, and forced
the bank to confer with the government in policy matters. The
Czech Lower House, however, is expected to overrule the veto.
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Irish inflation
at 6.2%
August 17
Inflation in Ireland reached
6.2% in the year to July, the highest rate since February 1985
and the highest in the euro zone, where the average is 2.2%.
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UK inflation
likely to rise above target,
says Bank
17 Aug 2000
The Bank of England says that inflation is likely to rise above its 2.5% target in the next two years. In the minutes of the August MPC meeting, it showed that the decision to maintain interest rates at 6% was on a knife-edge. Eddie George had to make the casting vote in favour of no change, after seeing both his deputies vote against him for the first time.
NO CHANGE - 5 VOTES
Eddie George
Ian Plenderleith
DeAnne Julius
Sushil Wadhwani
Christopher Allsopp
0.25% INCREASE - 4 VOTES
David Clementi
Mervyn King
John Vickers
Steve Nickell
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RBA leaves way open for more
interest rate rises
August 17
The Reserve Bank of Australia
has left open the prospect of further interest rate rises. The
bank has issued its quarterly assessment of the economy and financial
markets. The hawkish tone of the review has economists convinced
that this month's rate rise will not be the last. The Reserve Bank sees
major risks to growth and inflation. Growth is not slowing as
expected and there are broad-based price pressures, not just from
oil prices, but also higher production costs, the low exchange
rate and possibly from wage demands.
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RBNZ keeps rate unchanged despite
interest rate spike
August 16
The Reserve Bank of New Zealand left interest rates unchanged at 6.5% despite inflation nudging the top of the bank's inflation target zone. Don Brash has said in the past that the Reserve Bank can live with a short-term spike in inflation as long as inflation is expected over the 12-24 month horizon to come back nearer to the middle of the 0-3% target zone.
Following the decision, Brash
said there was much uncertainty about the outlook, especially
because economic data in small countries like New Zealand tends
to be "noisy". When revised employment figures came
out correcting March data, Reserve Bank Assistant Governor David
Archer said: "At the margin, these additional data reinforced
the bank's decision to leave the official cash rate unchanged."
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Reddell heads Financial Markets
Department
August 15
Michael Reddell is the new chief
manager of the Reserve Bank of New Zealand's Financial Market
Department. He replaces David Archer, who was recently appointed
to the position of chief manager of the Economics Department.
Reddell joined the RBNZ in 1983 as an economist and moved up through
the ranks of the Economics department. From 1993-95 he was on
secondment at the Bank of Zambia. He returned to the Reserve Bank
in 1995, joining the Financial Markets Department.
**************************************
Bulgaria's dollarisation debate
Boris Petrov, a research expert at the Bulgarian National Bank, and two colleagues Dr. Nikolay Nenovsky and Kalin Hristov, have started a new website to stimulate free discussions and debates about the optimal monetary regime for Bulgaria. The creators of the site believe that euroisation (the unilateral adoption of the euro as a legal tender) could allow Bulgaria to join European monetary union early. However, they say they don't know the right answer to the question of what is the optimal monetary regime for Bulgaria. They would value your comments which you can place on their message board!
[This website is of course independent
of the Bulgarian National Bank.] http://geocities.com/euroize/
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Eesti Pank uses foreign asset
manager to enhance risk management
August 2000
In the Bank of Estonia's annual report released this month, the Governor Vahur Kraft said that new systems in risk management had been installed in 1999 to increase the return on the bank's foreign currency reserves. These systems had been put in place by a foreign asset manager at the beginning of 1999 - as a part of the bank's overall strategy of risk diversification. Although negative yields in the world bond markets caused the central bank to suffer a loss in 1999, improved risk management meant that there was no actual decrease in reserves.
Increased transparency
Vahur Kraft also said that this
annual report was different from, previous issues: "This
report is a logical continuation in the Bank's strategy enhancing
the transparency of the central bank." The report states
clearly how the bank meets its constitutional requirements as
one of the most important public institutions in Estonia.
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Sharp deterioration in Fiji
August 16
The Reserve Bank of Fiji has issued its latest assessment of the economy. The previous statement was issued in May. Fiji's economy has deteriorated sharply over the past two and a half months and further declines are in prospect, the central bank said. Most sectors of the economy have weakened significantly with the largest contraction of output in the garment, manufacturing, construction, retail and hotel industries. Inflation has started to rise, although from very low levels.
On a positive note, however, sugar harvesting is well underway and inflows from sugar in coming months should help support incomes and provide foreign exchange inflows. However, the outlook for the remainder of the year is not encouraging. GDP is forecast to decline by 13-15% (US$600m) Substantial additional costs would also be borne in future years.
Enquiries to: Mr Sada Reddy,
Deputy Governor, Tel + 679 313 611
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Bangladesh finance minister
defends devaluation
August 10
Bangladesh's finance minister
has defended the massive
devaluation of the Bangladesh currency, the taka. The country's
central bank devalued the taka by about 6% against the US dollar,
as the local currency touched an historic low. Finance Minister Shah Kibria said the move would
help the country's competitiveness in the international market
and also check illegal transaction of foreign currencies. He said
the taka had succumbed to the pressure from competitive economies
in south and south-east Asia.
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Bank of Sudan enhances monetary
instruments
August 2000
In the August issue of The Banker magazine, Dr. Sabir Mohammed Hassan, Governor of the Bank of Sudan, talks about the major reforms going on in the Sudanese banking sector. The governor is confident that Sudan can attract foreign investment, having stabilised the economy and inflation. Sudan and Iran are the only two countries with Islamic banking and finance systems, while Pakistan is transforming its financial system into one that is Sharia based.
Dr. Hassan also talk about the monetary policy tools that central bank uses. In the beginning, the central bank depended on statutory reserves or direct intervention tools, such as credit ceilings for domestic banks, later moving on to market-oriented tools, such as mudraraba -- an equity-based paper traded between banks and with no maturity date.
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PAYMENT SYSTEMS CORNER
Please send me any information
/ articles on payments systems. We are publishing a book later
this year, which will survey all the major developments. BWELLER@CENTRALBANKING.CO.UK
**************************************
Macedonia payment systems tender
The National Bank of Macedonia
is tendering for a payment systems contract from IT companies
supplying information systems. The final day for acceptance of
offers will be 11th of September. For more information, go to
website (http://europa.eu.int/comm/scr/cgi/frame12.pl) and search
for supply tenders in Macedonia. Or contact Dane Krstevski, Senior
Advisor of Payments Unit at the National Bank KrstevskiD@nbrm.gov.mk
**************************************
Farewell to Wendelin at CPSS
On the occasion of the official farewell reception for Mr Wendelin Hartmann at the Deutsche Bundesbank in July, he was presented with a special issue of the German banking journal "Zeitschrift fuer das gesamte Kreditwesen". The topic of the special issue can be roughly translated as is "Payments (systems/service) as task of the central bank and service by banks"
Most articles are in German,
but some copies of the articles were published in English:
* T. Padoa-Schioppa, "Two crossing paths in international
cooperation"
* J.P. Redouin, "Cooperation and competition within the European
payments from the French perspective"
* W.J. McDonough, "Banking supervision and payment system
oversight: Common features and differences"
* C. Tresoldi: "European retail payments - a task for central
banks" If you would like copies of these email me at BWELLER@CENTRALBANKING.CO.UK
**************************************
Payment systems in Israel
The CPSS has just published
a new volume, "Payment Systems in Israel" that follows
the CPSS "Red Book" methodology. The volume was prepared
by the Bank of Israel. http://www.bis.org/publ/cpss39.htm
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BoE says XML language will
cut trading costs
August 2000
The Bank of England, in its Quarterly Bulletin, has said that the XML computer language being developed for the internet could drastically reduce the cost of processing financial transactions. It will reduce the errors in transactions that currently raise the cost of trading. Many trades around the world still rely on faxes, telephones and manual inputting to settle transactions and human error is believed to affect as many as two thirds of transactions.
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CURRENCY CORNER
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Banks to get euro banknotes early
The ECB has agreed that new
euro banknotes will be made available to banks up to three months
before they become legal tender on January 1 2002. Payment for
the new currency deliveries will be made in three tranches in
January. Bank will be required only to provide collateral for
the cash delivered when notes are passed on to retailers, the
vending machine industry and cash in transit companies. The ECB
has also extended the deadline for the exchange of national banknotes
for euros to March 31 2002, from December 31 2001.
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BIS responsible for banknotes
Bank for International Settlements'
secretariat for the Committee on Payment and Settlement Systems
(CPSS) is now responsible for organising meetings between central
bank banknote experts. The first meeting of the banknote experts
will take place in September.
**************************************
Training in detecting note
forgeries
August 21
Since the announcement of the withdrawal of Canada's highest denomination, the $1000 banknote earlier this year and a further announcement that a new series of banknotes will be released in 2001, the Bank of Canada have launched a new information programme directed at educating the public on how to detect genuine banknotes from forgeries. After two and a half years consultation with the retail community, the bank of Canada's currency education team have come up with various items which are designed to familiarise the public with some of the security measures found on Canadian banknotes.
Among the items made available to the public in both English and French are new decals which are easily affixed to cash registers and reference cards, small enough to fit in a purse or wallet. Both decals and cards point out very clearly four important security aspects of the banknotes. Other items available are video cassettes, leaflets and posters. The Bank of Canada said, "The best way to preserve the integrity and security of our money is an informed public". A training seminar for further education is also planned.
The story came from the London
Banknote and Monetary Research Centre http://www.lbmrc.co.uk
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Bank of Albania new Lek coin!
In September 2000 the Bank of Albania will issue the 100 Lek coin. This coin shall be issued for the first time and shall roughly have the value of 70 cents. After September 1, the 100 Lek denomination shall be in circulation in the territory of the Republic of Albania as a double denomination: banknote and coin.
The structure of the Albanian currency (Lek) in circulation, after September 1 shall be:
Coin...... 1
5
10
20
50
100.......Banknote
200
500
1000
5000
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Special millennium New Zealand
note
August 1
The New Zealand Reserve Bank has issued 1.5 million new $10 banknotes to celebrate the millennium. Brian Lang, the currency chief manager, said: "We are particularly pleased to be issuing this special millennium note into circulation, as it includes two new security features that have never been used on a banknote before. These features are right on the cutting edge of bank note security technology." One of these features is a silver fern that reflects rainbow colours when you tilt the note in the light. The other is the "Y2K" emblem that can be seen through the notes' "window". Email langb@rbnz.govt.nz
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WEBSITE CORNER
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Check out these new central bank websites!!
National Bank of Romania
http://www.bnro.ro/def_en.htm
Saudi Arabia Monetary Authority
http://www.sama.gov.sa/
Palestine Monetary Authority!
http://www.pma-palestine.org/
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ARTICLES OF THE WEEK
To include an article in "Article
Of The Week", please send an email to BWELLER@CENTRALBANKING.CO.UK
**************************************
Monetary Union in Iceland
By Professor Willem Buiter
This paper considers the pros and cons for Iceland adopting the euro as legal tender unilaterally i.e. euroisation.
Pros
1) Savings in microeconomic transactions costs are seen a positive
for euroisation as for bilateral adoption.
Cons
1) Loss
of lender of last resort facility
is seen as the most powerful argument against unilateral euroisation
2) Mundell's
Optimal Currency Area theory which focuses on the macro benefits
says Iceland would be unwise to euroise
3) Iceland is not a member of the EU - so political difficulties
of adopting euro. The transfer of national sovereign to the ECB
would lack political legitimacy.
Professor Buiter concludes that
euroisation for Iceland without being member of EU is simply unlikely
to survive. However,
if Iceland became a member of Emu bilaterally (and hence be represented
on the ECB council) the economic arguments would favour it. For copies of the paper, email me or
see the Central Bank of Iceland website on http://www.sedlabanki.is
**************************************
Central Banks in European
Emerging Market Economies in the 1990s
Eduard Hochreiter (Oesterreichische
Nationalbank) ; Tadeusz Kowalski (Poznan University of Economics)
This paper analizes the institutional framework of central banks in ten Central and East European countries using the ECB as benchmark. It looks at the legislated objectives of these central banks, assesses the degree of political and functional independence and the status of their democratic legitimisation and accountability.
The authors find that while
much progress has been made in making the statutes "Maastricht
compatible", all of them will have to be adapted once again
before EMU entry. The legislation provides for democratic accountability
comparable to that of the ESCB. In recent years the enacted limitations of fiscal
financing have become more binding. Rescue operations in the financial
sector might be seen as encroaching the independence of the central
bank. http://www.oenb.co.at/workpaper/wp40.pdf
**************************************
Estimating the Demand for
Money in Namibia
By Sylvanus I. Ikhide and Kava Katjomuise
No study has been undertaken
for the Namibian economy focusing on the demand for money. The
authors estimate the money demand function from 1990-98 using
cointegration and error correction models. The paper concludes
that real money balances, income and interest rates have stable
relationships in the economy, and that income and interest rates
are important determinants of money holding in the economy. These
findings contradict the previously held view that interest rates
were not an important channel for transmission of monetary policy
in Namibia. On the basis of this study, the authors recommend
the central bank move from its present direct methods for implementing
monetary policy (targeting domestic credit) to more indirect method
(controlling market interest rates).
For copies email leefa.martin@bon.com.na
**************************************
Eurosystem Monetary Targeting:
Lessons from US Data
By Glenn Rudebash and Lars E O Svensson
Using a small empirical model
of inflation, output, and money estimated on US data, the authors
compare the relative performance of monetary targeting and inflation
targeting. The results show that monetary targeting would be quite
inefficient, with both higher inflation and output variability.
This is true even with a nonstochastic money demand formulation.
The results are also robust to using a P* model of inflation.
Therefore, in these popular frameworks, there is no support for
the prominent role given to money growth in the Eurosystem's monetary
policy strategy.
Discussion Paper: 2522 available on the CEPR website http://www.cepr.org
**************************************
New York Fed Economic Policy Review
Volume 6, Number 3 (Forthcoming)
Special Issue on Lessons from the Recent Crises in Asia and Other
Emerging Markets
"The Impact of the Asia Crisis on U.S. Industry: An Almost-Free
Lunch?" by James Harrigan
http://www.ny.frb.org/rmaghome/econ_pol/800harri.html
**************************************
Financial Stability in the
Euro Area: Some Lessons from US Financial History
By E Philip Davis
http://fmg.lse.ac.uk/fmg/fmgsps/sp0123.pdf
**************************************
Banking systems and financial development in low income countries
Seven UK universities are carrying
out a three-year research programme that is designed to increase
understanding of the relationship between financial development
and poverty reduction so that policies can be more effective.
The research will provide practical advice for policy makers in
low income countries on issues such as the provision of financial
services to meet the needs of poor people; improving the access
to credit for small and medium sized enterprises; enhancing the
efficiency and regulation of the domestic financial sector; and
boosting savings.
A number of interesting working papers have been published on
the website
http://www.devinit.org/findev
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BOOKS OF THE WEEK
To include a book in "Book
Of The Week", please send an email to BWELLER@CENTRALBANKING.CO.UK
**************************************
Daniel Gros, Director of the Centre for Economic Policy Studies, has two works on central banking in the euro area:
* Quo Vadis Euro? The Cost of Muddling Through
This is the second Macroeconomic Policy Group Report on the ECB and the euro. The first report, published in early 1999, highlighted the "excessive" decentralisation of the Eurosystem and advocated a change in the policy mix - i.e. an easing of monetary policy and tightening of fiscal policy.
The author says that Europe's policy mix in now about right. As such, in this report Mr. Gros assesses the ECB's policy decisions, its communication of those decisions to the markets and discusses why the euro remains weak. Gros recommends that the ECB adopts an inflation target of 1.5% with a 1% tolerance bank on either side. He also says that the first pillar of the ECB's monetary strategy - the average three month growth in M3 - is redundant. He says the ECB's monthly bulletin should be a forward looking analysis rather than a backward assessment of the minutes of the previous month's council meeting.
* Open Issues in European central Banking (book by L. Bini-Smaghi and D. Gros).
This book looks at many important
issues for central banks in Europe:
1) Who is in charge of the Eurosystem?
2) Who takes care of financial stability in Europe?
3) Are European central banks overcapitalised?
4) Who gets seigniorage?
5) How can
the Eurosystem become (and remain) independent?
6) and accountable?
7) Concrete proposals for strengthening the Eurosystem
For more information on these
publications, contact Benoit Crutzen on email benoit.crutzen@ceps.be
**************************************
4 August 2000
**************************************
NEWS THIS WEEK
Ireland economy powers ahead
Hayami:
Dangers of maintaining zero interest rates
RBA in surprise pre-emptive strike
Ortiz frets about overheating economy
Minted Greenspan worth between $3.4million and $7million
New Tawian deputy governor speaks out
The beleaguered rupiah
Scepticism about currency board
Chancellor Brown snubs UK parliament
IMF upbeat on Slovakia on admission to OECD
Zimbabwe
devalues its dollar by 24%
Yemen's new stock exchange
CURRENCY CORNER
Bosnia
coin issue signifies new confidence
Armenia new series 5000 Dram note
PAPERS OF THE WEEK
Trends in central banking - Jurgen Stark
The day in the life of a Bank of Japan foreign exchange trader
Dollarisation for East Timor? - Ross McLeod
Yam relives LTCM crash two years on
**************************************
Happy birthday!!
Central Banking wishes a happy birthday to Chol-Hwan Chon, Governor of the Bank of Korea. He is 62 on August 6. An economics graduate, he began his career in the civil service at the Economic Planning Board. In 1976 he moved to Chungnam National University whre he became a professor of economics. From 1983-89 he was a member of the Bank of Korea's monetary board, before becoming Dean of the College of Economics and Management. He was appointed as Central Bank Governor in 1998.
**************************************
Bank of England Governor Eddie George on the WWW!!
The full version of the interview
with Bank of England Governor Eddie George is now available free
on Central Banking's website!! Please click on the link http://www.centralbanking.co.uk/pdfs/george.pdf
**************************************
Job advert - Multiproduct senior
sales
There is a vacancy on the central bank sales desk at Credit Agricole
Indosuez in Paris.
Focusing on its wholesale banking and international business within the Group Credit Agricole, Credit Agricole Indosuez, present in 55 countries with a workforce of nearly 11,000 people, is developing three areas of activity: Capital markets, European private banking and corporate banking. The bank's Capital Market business strategy, through its 20 dealing rooms and a staff of more than 1100 throughout the world, is to play a major role in the euro sector with an active presence in the main financial centres of Europe, the US and Asia. Thanks to this approach, it is possible to offer issuers and investors real-time quotes in 100 currencies, advisory services and tailor-made financial products.
The Capital Market department has a vacancy on the Global Forex and Treasury team.
Missions
- To manage relationship with central banks, supranationals and
government agencies
- To sell all financial products of the capital market division
- To market new clients
Profile
- Good knowledge of capital market products and especially derivatives
- High ambition, team spirit, strong technical skills
- Computer skills: Windows, Excel, Word, Powerpoint
- English a must. Based in Paris
If you are interested, send an email to head of central bank sales
CHARLES.STAUFFER@INDOSUEZ.COM
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NEWS THIS WEEK
**************************************
Ireland economy powers ahead
August 4
Ireland's economy, despite having
the highest inflation rate in the Eurozone, is in very strong
shape according to sources at the IMF whoa re carrying out the
latest Article 4 consultation. The dismiss the claims made by
Eurosceptics that in a few years down the line Ireland's buoyant
economy is likely to suffer a real estate crash and an economic
downturn. Ireland is often used as a case study by British Eurosceptics
to describe what would have happened to the UK if it had entered
on 1 January 1999. A Public Information Notice will be published
at the end of next week, if agreed by the Irish ministry of finance.
**************************************
Hayami: Dangers of maintaining
zero interest rates
August 2
Holding short-term interest rates near zero for an indefinite period could have an adverse impact on Japan's economy, Masaru Hayami, the governor of the Bank of Japan, warned on Wednesday. Speaking at a meeting of the lower house budget committee, the central bank chief said that as the economy heads toward recovery, maintaining the BOJ's zero interest rate policy any longer would lay the groundwork for future inflation, leading to economic instability.
"An ultra-loose monetary policy will eventually have a major impact on the economy and prices," he said. "That increases the risk that even bigger interest rate adjustments will be necessary." "I know from experience," he added.
The Bank's policy-setting board
meets on August 11.
**************************************
RBA in surprise pre-emptive
strike
August 3
Australia's central bank surprised
financial markets yesterday with a rise in official rates that
many thought was at least a month away, and left the door wide
open for another tightening. Though a string of higher than expected inflation
readings in the past two weeks caused concern about growing wage
and price pressures, most
analysts had expected the Reserve Bank of Australia to wait for
more economic data. "The balance of risks had, in recent
months, tilted somewhat further towards higher inflation,"
Mr. Macfarlane said, adding the rate rise sought to limit those
risks. Inflation in Australia reached its highest level in four
years in the June quarter, rising above the Reserve Bank's target
range to 3.2 per cent on an annual basis.
**************************************
Ortiz frets about overheating
economy
August 3
Banco de Mexico Governor Guillermo
Ortiz said there was a
danger the economy could overheat in the light of greater-than-expected
growth in domestic consumption
during May. Ortiz said the central bank had tightened monetary
policy earlier this week in order to head off inflationary pressures
arising from untamed consumption growth. He also warned that consumption
growth could lead to a blowout in Mexico's trade deficit, and
urged the federal government to adopt tighter fiscal policy. Ortiz urged unions and workers to
take into account reduced inflationary expectations during the
upcoming round of collective wage bargaining.
**************************************
Minted Greenspan worth between
$3.4million and $7million
August 4
According to a financial disclosure report, the value of Alan Greenspan's investments in 1999 totalled between $3.4m and $7m, up from $2.5m to $6.4m in 1998. To avoid conflict of interest, Greenspan holds neither equities nor longer-term bonds, both of which can be affected by interest rate decision which he makes as chairman of the Fed. His largest assets are four Treasury bills valued at between $500,000 and $1m.
Greenspan, 74,
who earned $136,700 last year, is comparatively one of the less
well-paid central bankers.
Last year, the Economist magazine reported that Bank of Italy
governor Antonio Fazio was the highest paid central banker in
the world, with a reported salary of $600,000.
**************************************
New Tawian deputy governor
speaks out
August 1
A senior Taiwanese central banker has suggested that the island should open up its economy to investors from the Chinese mainland. Chen Shih-mung, who is the new deputy governor of Taiwan's central bank, was quoted as saying that he believed that mainland investment would help to maintain the security of the island.
However, he said that investors should be restricted to mainland local governments and individuals -- who, he said, would be less likely to become tools of warfare or to disrupt Taiwan's financial system. Mr Chen said that communist owned central and state enterprises should still be excluded from investing in Taiwan
His comments brought a cautious
response from Vice Economics Minister Lin Yi-fu. "Before
we come up with a new liberalization package, we must conduct
extensive discussion with local industries," Lin said, adding
that a new version of regulations governing mainland China-bound
investment is expected to be finalized by mid-September.
**************************************
The beleaguered rupiah
August 3
Bank Indonesia acting governor Anwar Nasution said on Wednesday the central bank's recent move to send its inspectors to foreign exchange banks operating in the country had been effective in helping to stabilize the rupiah. Bank Indonesia recently sent its inspectors to dealing rooms of foreign exchange banks in Jakarta after the rupiah tumbled to a 21-month low of 9,570 per U.S. dollar amid continuing political uncertainty.
Bank Indonesia officials have
said that the central bank would continue surprise inspections
to ensure that the banks abide by the existing rulings, including
a prohibition of surpassing the 20 percent daily net open position
limit, and from opening forward dollar contracts worth more than
US$5 million with nonresidents.
**************************************
Scepticism about currency
board
August 3
Separately, Bank Indonesia deputy
governor Achjar Iljas said that Indonesia was not in a good enough
condition to implement a currency board system (CBS). He said
that the country's foreign exchange reserves were simply not sufficient
and the condition of the banking system was not strong enough
to support a CBS. He also cautioned that under the CBS system,
banks suffering a funding mismatch could not seek credit from
the central bank as the lender of last resort. One of the key
elements of an amendment to the 1945 Constitution being finalized
by the People's Consultative Assembly is an option between maintaining
the current central bank or creating a completely new monetary
authority.
**************************************
Chancellor Brown snubs UK
parliament
August 2
Members of the UK Treasury Select Committee were shown their place this week by the UK Chancellor, Gordon Brown. The committee, which holds "confirmation" hearings with new members of the Bank of England's Monetary Policy Committee (MPC), is lobbying for a bigger role in the selection of candidates to the MPC. In particular they would like the power to veto any candidates proposed by the chancellor whom they decided were not up to the job.
In the Summer they attempted
to flex their muscles by recommending that the Chancellor's latest
choice for the MPC, Christopher Allsopp, should not take up the
post. Gordon Brown's response was dismissive. On Tuesday, two
months after the committee's recommendation, and after Parliament
had gone on holiday, he delivered a two paragraph response, asserting
"Mr Christopher Allsopp fully satisfies the criteria for
appointments to the Bank of England Monetary Policy Committee".
http://www.publications.parliament.uk/pa/cm199900/cmselect/cmtreasy/859/8590
3.htm
While a setback for the committee's
ambitions, the argument is clear warning that MPC members (and
in particular Mr Allsopp) should expect, and prepare for, a hostile
audience on their visits to Westminster. There is, perhaps, another
reason for the brevity of the Chancellor's response. He has had
many pressing recent engagements, among them a visit yesterday
to Scotland to marry to his long-term girlfriend Sarah Macauley,
a public affairs consultant.
**************************************
IMF upbeat on Slovakia on
admission to OECD
July 28
Slovakia finally won endorsement
for admission to the OECD following a resolution of French concerns
over Slovakia adherence to EU broadcasting and television rules.
A separate report released on the same day by the IMF was fairly
upbeat on Slovakia's economy, noting the improved current account
and fiscal situation, and the strengthening of the banking system
and the National Bank of Slovakia's supervisory capabilities.
**************************************
Zimbabwe
devalues its dollar by 24%
August 2
Zimbabwe devalued
its currency by 24 per cent against the US dollar in the hopes
of reviving its gold and tobacco export industries. The new rate, of Z$50 to the US dollar
from Z$38 previously, falls short of the free market rate for
the Zimbabwe dollar, currently over Z$60. But the devaluation
is greater than many in the market had expected, and has been
implemented
despite the often-expressed opposition to devaluation from senior
members of President Robert Mugabe's government.
**************************************
Yemen's new stock exchange
August 2
Yemen is to launch a stock exchange, said central bank governor Abdelrahman Samawi. "It's a big step which will encourage investments and attract foreign capital," Samawi told a local news agency. The plans are to be submitted to the government within two months.
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CURRENCY CORNER
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Bosnia coin issue signifies
new confidence
31 July
The central
bank of Bosnia-Hercegovina is introducing new one and two convertible
mark coins, a sign that it expects inflation to remain low. The
convertible mark was introduced three years ago, and is pegged
on a one-to-one basis with the German mark. German coins have
been circulating widely in Bosnia, but Germany has stopped producing
them as it prepares for the arrival of the single European currency,
the euro.
**************************************
Armenia new series 5000 Dram note
The Central Bank of the Republic
of Armenia have just issued a new 5000 Dram banknote in the new
series begun in 1998 which feature outstanding personalities in
the Arts, Science and Literature. The new note is dated with the
year "1999" and portrays the eminent writer Hovhannes
Tumanyan (1869-1923) the most prominent writer of Armenian literature
during the first two decades of the 20th century.
For more information: http://www.lbmrc.co.uk
**************************************
PAPERS OF THE WEEK
**************************************
Trends in central banking
Jurgen Stark, Deputy Governor of the Bundesbank
Jurgen Stark, the Bundesbank's Deputy Governor, gave a very interesting speech in celebration of the 25th anniversary of the Bank of Botswana in the Botswana capital Gabarone on July 7. He re-iterated three points:
"There is now a worldwide consensus that monetary policy - as independent as possible of political influence - should be committed primarily to the objective of price stability. The experience of the industrial countries in the 1960s and 1970s, at least, showed that an inflationary policy only harms the development of the economy.
"The benefits of the paradigm change that took place in the 1970s and early 1980s are now becoming apparent. Inflation has been largely brought under control and, in most industrial countries, it is more or less already possible to speak of price stability. That does not mean, of course, that we central bankers have to fear that we shall soon become superfluous. Price stability is a good that has to be earned every day anew - vigilance is therefore still the prime necessity for policymakers.
"But in another respect,
too, there is no cause for us to be complacent or satisfied with
ourselves and take a back seat. New challenges are on the horizon.
I see no occasion for pessimism, however, when faced with the
advancing globalisation of the financial markets and intensifying
competition in the financial sector: they may call for flexible
adjustments and changes but are not a fundamental impediment to
an effective monetary policy. Established economic relationships
may change or become looser, but this will not prevent monetary
policymakers from being effective in performing their task of
ensuring the internal stability of their own currency in the future
as well."
**************************************
The day in the life of a Bank of Japan foreign exchange trader
The Bank of Japan Financial
Markets Department has published on its website the answers to
frequently asked questions about the Bank's foreign exchange interventions.
There is also an interesting article by a BOJ foreign exchange
trader about what he does during his day. These publications are
part of the Bank's strategy to increase the transparency and public
knowledge of its foreign exchange operations and interventions
which have previously been kept very secret. The Bank increasing
openness about its foreign reserves is an attempt to reveal the
true cost of holding reserves and to urge the ministry of finance
to adopt more transparency too about its reserve holdings which
are substantially larger than the Bank's.
For the paper click on: http://www.boj.or.jp/en/faq/faqkainy.htm
**************************************
Dollarisation for East Timor?
When complete independence is achieved in East Timor after 27 years of occupation from Indonesia, the Government of the new state should seek to introduce the Australian Dollar as legal tender rather than set up its own currency, according to a report for the Pacific Economic Bulletin by Professor Ross McLeod of the ANU. Some of the reasons given for circulating the Australian Dollar would be the high cost to the new government of establishing a Central Bank and the risk to its emerging economy if East Timor's monetary policy is poorly managed. The U.S. Dollar is currently in use and although East Timor would certainly be better off using the dollar rather than implementing its own currency, "there are still greater advantages to using the Australian dollar" says Professor McLeod. For more information on this and other related articles, please see the Pacific Economic Bulletin at: http://peb.anu.edu.au
This story came from the London
Banknote and Monetary Research Centre website at http://www.lbmrc.co.uk
**************************************
Yam relives LTCM crash two years on
In a personal "Viewpoint"
published on the HKMA website, Joseph Yam, chief executive, relives the battle
he waged with colluding hedge funds and speculators during the
summer and autumn of 1998.
http://www.info.gov.hk/hkma/eng/viewpt/index.htm
© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.
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