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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!
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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.
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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4 August 2000

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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

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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.

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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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

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PAPERS OF THE WEEK
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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."
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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
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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
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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

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