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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.
9 August 2002
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A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
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BERNANKE AND KOHN ACCEPTED
The Federal Reserve Board is now to enjoy its full complement of seven with the arrival of two new faces on its board, Ben Bernanke and Donald Kohn. They sailed through a hearing with the Senate Banking Committee, which treated them with "exceptional deference" and faced questions for less than an hour. They pledged to strive to make the Fed's decision-making process more transparent and demonstrated unswerving support for the monetary policies pursued over the last 20 years by Paul Volcker and Alan Greenspan.
Kohn replaces Laurence Meyer to undertake a full 14-year term until 2016, by which time he will be 73 years old, while Bernanke fills the gap left by the resignation of Edward Kelley, so that his term expires in 2004. As things now stand, the seven board members are Alan Greenspan (chairman), Roger Ferguson (vice-chairman), Edward Gramlich, Susan Schmidt Bies, Mark Olson, Ben Bernanke and Donald Kohn.
At the hearing, Bernanke reiterated his by now well-known and mildly controversial opinion that the Fed should adopt inflation targeting, possibly in the range of 1-2% a year. Until now Greenspan has opted for a more intuitive approach, but Bernanke insisted that his ideas are not radically opposed to the Fed's current modus operandi: "It is important to stress that inflation targeting, as I interpret it, would not represent a major departure from the current practice of U.S. monetary policy or a change in policy objectives."
Kohn spoke out on the growing consolidation in the US banking sector which has fomented sounder and more diversified institutions, but he recommended that banks should be allowed to go bust if they fail the market test: "No depository institution should be insulated from market forces by being considered too big to fail."
Perhaps fortunately, nobody in the markets actually believes that doctrine, but political correctness never did have much to do with the real world, did it?
THE ORDER OF THE EMPIRE FOR ALAN...
Queen Elizabeth II of England, in all her munificence, has conferred an honorary knighthood on Alan Greenspan. This is in recognition of his "outstanding contribution to global economic stability and the benefit that the UK has received from the wisdom and skill with which he has led the US Federal Reserve". Although, as he is not a UK citizen, he is denied the amusement of calling himself Sir Alan Greenspan (thus firmly remaining Mr Greenspan), he does now have the pleasure of appending the letters KBE to his name, making him a noble Knight Commander of the Order of the British Empire.
In a statement released by the Fed, he expressed his gratitude: "I am most privileged to accept this honour. I have valued my close relationship with the Bank of England and with many chancellors of the exchequer, going back nearly 30 years." This honour is very rarely granted. Fellow American knights include Ronald Reagan, George Bush (senior), former New York Mayor Rudy Giuliani, entertainer Bob Hope and General Norman Schwarzkopf of Gulf War fame.
Foreigners from any country are eligible for this honour except, it seems, people from an international institution. This is one honour that the much-decorated Wim Duisenberg may not be in line for.
...AND THE ORDER OF THE BOOT FOR DEVAKULA?
Thailand's prime minister Thaksin Shinawatra would love to boot out central bank governor Pridiyathorn Devakula. Or so some people say. The PM vehemently denies this - they are the best of buddies. He insists that he and Devakula "speak the same language", and suggests that these rumours were only designed to portray him as the "bad guy". He said, "I am a kind northerner. I am not mean or cruel... But I have to be tough when it is required."
Devakula's meeting with the finance minister this week also sparked rabid speculation, which the latter promptly quelled: "It's normal for me to ask questions when something goes wrong It doesn't mean I plan to fire anyone." He strengthened his case by citing Thailand's exceptional performance in reducing the national debt and increasing reserves as "signs of how well the central bank and the finance ministry are working together".
DON'S REVENGE
Former governor of New Zealand's central bank Don Brash vindicated his plucky decision to turn to politics by finally managing to get elected after failing to do so twice previously in the early eighties. True, in forsaking the central bank, he has aligned himself with the party on the losing side in the recent elections, the centre-right National Party. But this has still presented Brash with unparalleled opportunities to speak his mind after 13 years of being gagged at the central bank. He has proved himself to be a formidable adversary in parliamentary debates, and has got stuck in with gusto. Provoked to biting point by underhand sniping from his opposite number, finance minister Michael Cullen, who has been smearing his proud record as central bank governor, Brash lashed out. Cullen, he said, was like a fat jockey slowing down New Zealand's thoroughbred economy.
Who was it that used to insist that there was never any tension between the finance ministry and the central bank during Brash's tenure?
SENSATIONAL NEW ISSUE OF CENTRAL BANKING JOURNAL OUT NOW!
Articles by Allan Meltzer on asset bubbles, Jean-Jacques Rey on bankruptcy courts, Mario Blejer on Argentina, Brent Eades of the Bank of Canada on central bank websites, Charles Wyplosz on the economics of enlarging the euro area, and Steve Hanke on central banks' lack of transparency.
Plus an interview with Milton Friedman!
O'CONNELL KEEPS BUSY
Back to the time-honoured question: is there life after central banking? Some, like Brash, go into politics. Maurice O'Connell, whose eight-year shift at the head of Ireland's central bank ended last March, has followed a rather less conventional route. He was last spotted doing a review of Ireland's Football Association following Ireland's part in the recent World Cup in Japan and South Korea. The job progression is not quite as incongruous as it may seem, as according to the Central Bank, "He has a big interest in sport so he would be well versed with the various issues that arose during Ireland's world cup campaign." Although he will not be assessing the performances of the players themselves, he will be examining the FAI's performance off the field. But this is not all. To ensure that he keeps himself occupied, the government has enlisted his help to bring ministers' expenditure figures under control, appointing him to a small team charged with reviewing ministers' spending proposals.
Which other central bankers are into football? Well, there's Brian Quinn, former executive director at the Bank of England, who is chairman of Celtic Football Club. And Howard Davies of the FSA hates to miss a Manchester City match...
HAPPY NOTE FOR JAPAN
The Bank of Japan is trying to kick start its crumbling economy not by printing banknotes but by redesigning them. Or so some allege. It is ostensibly a measure to improve security against counterfeiting but finance minister Masajuro Shiokawa hopes the new design will "brighten the mood" of the nation. Indeed, the news has already had its affect: shares of Oki Electric Industry, a major player on the ATM market in Japan, leapt 12.7%.
The notes will depict a number of Japanese worthies - all with "difficult-to-counterfeit faces". Novelist and poet Ichiyo Higuchi is to be featured on the 5,000-yen bill, and will be the first woman to appear prominently on a Japanese banknote since the end of World War II, a tribute to women's rising positions in society. The first time a woman appeared on a Japanese note was in 1881, portraying Empress Jingu (although this was not issued by the Bank of Japan which was founded in 1882 and printed its first bills in 1885). But since then Japan has been slow to do other women a similar honour - although Murasaki Shikibu, 11th century courtier and author of the epic "Tale of Genji", appeared on the back of the 2,000-yen bills issued in 2000, but this does not qualify as a portrait. The 1,000-yen note is consecrated with the visage of bacteriologist and microbiologist Hideyo Noguchi. Yukichi Fukuzawa, educator and protagonist of enlightenment, remains on the 10,000-yen bill.
FAREWELL, RUDIGER DORNBUSCH
The flamboyant MIT economist Rudiger - better known as Rudi - Dornbusch has died of cancer aged 60. He firmly established his reputation amongst economists with his seminal 1976 paper on foreign exchange rates and overshooting. He was also respected for his opinions and work on international economic policy, particularly in Latin America. Although he never aspired to be a policymaker himself, policymakers regularly turned to him for his opinion. His commentary on economic affairs was perhaps what most endeared him to his peers, unfailingly delivered with panache and iconoclastic wit. Journalists quote his opposition to the IMF's bailout of Brazil in 1998: "When they (Brazil) call 1-800-BAILOUT, just let it ring. Say our operators are busy."
I wonder what he would have thought of the latest blockbuster $30bn bailout.
POP QUIZ
How much do you know about the Federal Reserve? So challenges the Washington Post on a recent posting to its website, posing ten questions plumbing the very limits of knowledge on monetary policy and the institutional framework of the Fed. Think you could get full marks? Really? http://www.washingtonpost.com/wp-srv/business/quizzes/fedquiz.htm
JAMAICAN HONOURS
Central bank governor Derick Latibeaudiere has been awarded the Order of Jamaica for his "significant contribution to central banking and finance". All former governors of the bank have received the Order of Jamaica, one of the country's most prestigious honours, but only two while in office (Arthur Brown in 1973 and Headley Brown in 1988). Well done, Derick.
NEW GOVERNOR IN MAURITANIA
A new governor has been appointed to the Central Bank of Mauritania: Yahya Ould Atik. Former governor Sidi Mokhtar Ould Naji has been appointed by the president as commissioner for human rights, combating poverty and integration.
QUESTION TO NEWSMAKERS SUBSCRIBERS
Who celebrated his recent birthday by saying in an interview:
"Alan Greenspan may be splendid, but who knows who the next one will be? Money is too important to be left to central bankers."
© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.
Benedict
Mander
Email: bmander@centralbanking.co.uk
Central Banking Publications Ltd
6 Langley Street, London WC2H 9JA, UK
Tel: +44 (0)20 7836 3625
Fax: +44 (0)20 7836 3608
http://www.centralbanking.co.uk
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