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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.

24 July 2000

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NEWS THIS WEEK

Sir Eddie George interview in Central Banking journal
Happy Birthday to Tommaso Padoa-Schioppa!!
Both deputy governors of Bank of Estonia quit
Departing deputy governor predicts e-banking takeoff
Rojo one of Lamfalussy's "wise men"
Vickers replaced by Charles Bean as Bank chief economist
China's bank governor pledges financial reform
Surprise rate cut by Brazil
Controversial CNB legislation approved
BOK rejects theories of another financial crisis
Obstacles to Argentine dollarisation
End to zero interest rates would not mean tightening
Reserve Bank of Fiji relaxes capital controls imposed during crisis
Thai economy shows little inflation risk
Uzbek government launches shake-up of banking system
Indonesian bank chief set for trial
French questions over ECB's role
Debra Goins to leave BMA

PAPERS OF THE WEEK

Monitoring the ECB
RTGS plus - the Bundesbank's new system for individual payments

BOOK OF THE WEEK

Fed Watching
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Eddie George interview in Central Banking journal
Published tomorrow!!

In the latest issue of Central Banking, we have an exclusive interview with Eddie George, governor of the Bank of England. Mr. George gives his views on the success of the monetary policymaking process, progress made by the Bank in strengthening the international financial system, and whether the UK is ready to join European monetary union. In the interview Eddie George describes himself as a Euro-pragmatic rather than a Euro-sceptic.

The journal also interviews Marian Jusko, governor of the National Bank of Slovakia, who emphasises the importance for Slovakia to enter the OECD as soon as possible, and says that the current account and fiscal deficits that have troubled the economy for the last few years are finally in reverse for good.

To see more on the latest issue:
http://www.centralbanking.co.uk/publications/cbj.htm

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Happy Birthday!!

Tommaso Padoa-Schioppa, member of the board of the ECB responsible for banking supervision, was 60-years-old on 23 July. He was recently appointed head of BIS Committee on Payment Systems. There seem to be few positions in the engine rooms of international finance that Mr Padoa-Schioppa has not held. He worked for the EMI as the chair of its committee on payment systems, he has been a Director General of the European Commission, Chairman of the Basel Committee on Banking Supervision, He has been President of CONSOB, the Italian securities regulator, the rapporteur on the Delors Report, and member of the Group of Thirty.

He will be 65 when his seven-year term at the ECB ends in 2005. Although he will be nearing retirement then, a smooth transition to IMF cannot be ruled out to complete his Grand Slam of the IFIs. Horst Kohler's five-year term at the IMF expires in spring 2005 - perfect timing for the Italian master's next move.

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Both deputy governors of Bank of Estonia quit
July 24

Peter Lohmus and Helo Meigas, deputy governors of the Bank of Estonia, have both quit their jobs within weeks of the re-appointment of Governor Vahur Kraft. Mr Kraft's reappointment in June gave the opportunity for both deputy governors to pursue career changes that they long wanted to do. If Kraft had not been reappointed, Lohmus and Meigas would have had to stay at the Bank to support the new governor who would not have had the depth of Kraft's experience.

Mr. Lohmus announced his plans for resignation in the autumn of 1999. He has planned to work in the US for some years. However, before leaving for the US he had agreed to participate in setting up a private sector analysis and consultancy centre (a project started in July).

Mrs. Meigas decision resignation should be seen in the context of changes that will take place in how financial supervision is carried out in Estonia. The government is setting up a consolidated financial supervision body to incorporate banking supervision, insurance supervision and securities market supervision. Also, it was a natural time for Mrs. Meigas to go because she had completed some large scale projects recently such as the new RTGS payment system.

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Departing deputy governor predicts e-banking takeoff
18 July

Miguel Martin, who last week left his post as the deputy governor of the Banco d'Espana, said that by 2005 up to 30 per cent of current accounts and 20 per cent of investment funds and mortgages would be carried out via the Internet. Martin had been deputy governor for eight years and is replaced by Gonzalo Gil, director general for operations, markets and payment systems. Martin's departure follows the recent departure of bank governor Luis Angel Rojo Duque, who was replaced by Jaime Caruana.

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Rojo one of Lamfalussy's "wise men"
July 18

Even though Rojo has left the Bank of Spain, he will certainly be kept busy in his new role on the Committee of Wise Men on EU Securities Regulation, chaired by Alexandre Lamfalussy. We reported a few weeks ago in Newsmakers that he cannot go into the private sector for two years after leaving the Bank because of Spanish employment regulations over public sector appointments. Rojo's new job will be to find out how best to promote a single market in securities in the light of globalisation and regulations devised for fragmented national financial markets.

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Vickers replaced by Charles Bean as Bank chief economist
July 21

Charles Bean, professor of economics at the London School of Economics, will succeed John Vickers as chief economist and executive director at the Bank of England. Bean, 46, who teaches macroeconomics, will be one of the nine voting monetary policy committee members. He has long been touted for a senior Treasury or Bank post, having been an adviser to the Treasury for many years. He was also a visiting professor at the Reserve Bank of Australia (CV at http://econ.lse.ac.uk/staff/cbean/). Vickers, 42, who joined the Bank only two years ago from Oxford University, will become head of the Office of Fair Trading in the autumn.

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China's bank governor pledges financial reform
July 20

Dai Xianglong, governor of the People's Bank of China, pledged to push forward with market liberalisation plans in areas such as monetary policy and the exchange rate, although he warned that such reforms would be gradual and would not be completed for several years. China's renewed enthusiasm for creating conditions necessary for renminbi convertibility, an initiative that was frozen during the Asian financial crisis, is being driven in part by the country's impending membership of the World Trade Organisation.

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Surprise rate cut by Brazil
July 20

Brazil's central bank last week surprised financial markets by reducing its main lending rate by half a percentage point to 16.5 per cent. It is the third interest rate reduction, totalling two percentage points, in less than a month. Luiz Fernando Figueiredo, the bank's director for monetary policy, said the move was the result of "a downward revision of the inflation expectation for this year and next year".

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Controversial CNB legislation approved
July 17

The lower house of the Czech Parliament has approved an amendment to the central bank law on, including several controversial clauses which critics said may limit the bank's independence. Among other significant changes, the lower house approved a floor amendment under which all seven central bank board members would be proposed to the president by the government. They are currently chosen solely by the president.

The MPs also voted to make the bank's operating budget subject to parliamentary approval, which the bank says may lead to unacceptable political pressure. Central bank Vice Governor Oldrich Dedek said the central bank was mostly happy with the amendment, apart from the section on the budget. "It [budget approval process] is an issue where we have a suspicion that the European Commission may raise doubts," he told reporters. He added that the board selection was unconstitutional but had no fundamental objections to the content of the proposal. "The first impression is mostly positive. In the final version many problematic floor amendments did not appear," Dedek said.

The chamber also voted to force the bank to seek an agreement with the government on setting inflation targets and the foreign exchange regime, changes with which the bank agrees. The law was originally proposed by the Cabinet to bring Czech central baking into line with European Union norms, changing the bank's main aim of maintaining "currency stability" to "price stability."

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BOK rejects theories of another financial crisis
July 20

The Bank of Korea has strongly refuted continuing rumors and concerns that Korea could be heading for another financial crisis, resulting mainly from the slowdown in restructuring and a reduction in the foreign reserve. Central bank officials said that there is clearly a trend of foreign investment, distinguishing conditions in Korea to those in Southeast Asia and that foreign investment here is consistently increasing.

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Obstacles to Argentine dollarisation
July 17

Pedro Pou, president of Argentina's central bank, announced a US$643m net profit during 1999, reports banking consultant Pablo Curat. The segniorage revenue was US$900m, or 0.3% of Argentina's GDP. Taking into account the fiscal situation of the country, this is one of the major obstacles in implementing a full dollarisation.

For more information e-mail Pablo Curat: cml@sinectis.com.ar
http://www.cmlconsultores.com.ar

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End to zero interest rates would not mean tightening
19-July

Bank of Japan Governor Masaru Hayami has repeated said that if the BOJ ends the zero interest rate policy, it would not mean credit tightening. An end to the ultra-easy monetary policy, when it comes, would represent the central bank's return to normalcy, Hayami said at a press conference, describing the policy as an emergency step to deal with an extraordinarily economic situation.

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Reserve Bank of Fiji relaxes capital controls imposed during crisis
July 17

The Reserve Bank of Fiji has announced that the interest rate that it charges for funds provided to commercial banks under the Export Finance Facility will fall from 15 to 5 percent. The Export Finance Facility is a scheme whereby the Reserve Bank provides funds to commercial banks and the Fiji Development Bank which can be on lent to customers for export-related payments. The scheme was introduced in 1983 and is designed to assist the export sector by ensuring the availability of credit at relatively low interest rates.

The rates on pre/post-shipment finance under the scheme had been linked to the Bank's Minimum Lending Rate (MLR), which rose to 15 percent following the policy tightening on 22 May 2000. The rate has been temporarily de-linked from the MLR and set at 5 percent. It is hoped that this will provide some support for exporters during this difficult period.

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Thai economy shows little inflation risk
July 19

Inflation over the next two years is expected to remain under the 3.5% target as economic recovery remains limited, said Pakorn Malakul na Ayuthaya, a Bank of Thailand deputy governor. The Monetary Policy Board yesterday agreed to leave the 14-day repurchase interest rate unchanged at 1.5%. Pakorn said the economy had shown overall improvement, driven by exports and fiscal spending. But excess supply and capacity under-utilisation showed that recovery was not broadly based, with many small firms struggling or undergoing debt restructuring.

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Uzbek government launches shake-up of banking system
19 July

The Uzbekistan government has issued a resolution setting up monitoring of the main indicators in the operation of the banking system. This aims to step up economic reforms in the banking sector and raise the level of capitalization in commercial banks. The central bank has drawn up and endorsed standard-setting documents establishing a compulsory system of economic indicators for each bank, in accordance with international standards and priority rating principles.

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Indonesian bank chief set for trial
July 20

Indonesian central bank governor Sjahril Sabirin is set to go on trial next month for involvement in connection with a multi-million dollar banking scandal. Attorney-General Marzuki Darusman gave no details as he made the announcement, but he has previously said Mr Sabirin would be prosecuted for graft.

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French questions over ECB's role
July 24

A few weeks ago French finance minister Laurent Fabius told the European Parliament that finance ministers might have a role in setting the inflation objective for the ECB. However last Monday, Fabius said his comments had been misunderstood and there was no question of encroaching on the ECB's independence. His original remarks had brought a sharp rebuke from the President of the Bundesbank Ernst Welteke who had said that Mr Fabius suggestion was "totally superfluous" and that the ECB's independence from political interference was guaranteed by the Maastricht Treaty.

Central Banking journal has an exclusive interview with President Welteke in the next issue of the journal!! Also of interest is an article in this month's Central Banking journal by Lionel Jospin, the French premier, who argues that there needs to be greater coordination between the ECB and European institutions.

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Debra Goins leaving Bermuda Monetary Authority
July 24

Debra-Lynn Goins, who was head of the legal department at the Bermuda Monetary Authority, is leaving as of the 11 August.

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PAPERS OF THE WEEK
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Monitoring the ECB: Update June 2000
By Carlo Favero, Xavier Freixas, Torsten Persson, Charles Wyplosz

The latest review of the performance of the ECB by four eminent macroeconomists rejects the usual arguments that are often put forward for explaining the euro's weakness. They do not believe the weak euro has been caused by the fact that Europe cannot adopt "new economy" technology found in the US. They also reject the view that the dollar strength is caused by the strong stock market. Instead, they point to "evidence that the ECB's credibility has been wavering", suggesting that the ECB's communication strategy has confused the markets.
Published by the Centre for Economic Policy Research
http://www.cepr.org

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RTGS plus - the Bundesbank's new system for individual payments

The Bundesbank has designed a new liquidity-saving large-value payment system in euro called RTGSplus, which unites the existing German large-value payment systems Euro Link System (ELS) - including the TARGET interface via the national interlinking component (NIC) - and Euro Access Frankfurt (EAF) to form a single payment system in euro.

RTGSplus is designed to set new standards in terms of services and availability. Having been approved by the Bundesbank central bank council at its meeting on January 27, 2000, the project is now in the process of implementation. The following article (click on link below) will describe the main considerations that led to this decision and provide some insight into the design of RTGSplus.
http://www.bundesbank.de/en/monatsbericht/bericht06/textteil/00/rtgs.pdf

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BOOK OF THE WEEK
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Fed Watching - Making sense of Market Information
By Brian Kettell, senior lecturer at London University
Email Brian at XEX42@DIAL.PIPEX.COM

This is a very interesting book, providing a jargon free guide for those seeking to understand the role of the US Federal Reserve in the international financial system. The book highlights how to interpret and predict the actions and reactions of the Fed - enabling readers to gain an inside view of the key facts affecting US interest rates.

Financial Times Prentice Hall Publishing -- ISBN 0 273 63072 5

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14 July 2000

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NEWS THIS WEEK

Marko Skreb leaves the Croatian National Bank
Will Bank of Japan end zero interest rates?
Sabirin detained for another 40 days
New Fiji bank governor
Vietnam begins open market operations
Taiwan governor says repeat of financial crisis unlikely
Weakening baht good for Thailand
Why the US should encourage dollarisation
BIS on core principles for payment systems
Euro is shredded
New Haiti central bank!
Bomb alert at Belgium central bank
PWC release second report on Ukraine

PAPERS THIS WEEK

Central Banks Use of Derivatives and Other Contingent Liabilities
Mundell, the Euro and Optimal Currency Areas
Games for Central Bankers

BOOK OF THE WEEK
Private Capital Flows in the Age of Globalisation

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HAPPY BIRTHDAYS!!!

Reinoldijus Sarkinas, Chairman of the Board and Governor of the Bank of Lithuania, is 54 years old on 16 July. He joined the Bank in 1996 and his five-year term ends in February 2001. Before becoming governor, he spent most of his career at the Ministry of Finance (he joined in 1972). He was appointed the Minister of Finance in 1995.

Birgir Gunnarsson, Chairman of the Board and Governor of the Central Bank of Iceland, is 64 on July 19. Before becoming Chairman, Mr. Gunnarsson spent time as a member of parliament for the Independence Party, becoming minister of culture and education. He has been governor since 1991 and chairman of the board since 1994.

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The Internet's only full list of Ministries of Finance

Central Banking has compiled an almost complete list of links to the websites of the world's finance ministries. Such a full list does not exist anywhere else on the web. This list complements the links page for central banks and financial regulators which are also on our website. However, if you notice a link which has been overlooked, and of course there will be, please do not hesitate to contact me on BWELLER@CENTRALBANKING.CO.UK

To see the list, click on:
http://www.centralbanking.co.uk/links4.htm

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Conferences for central bankers, financial supervisors and central bank librarians

Please don't forget that we are organising three conferences in Cambridge from 10-14th September. One is for central bankers, one for financial regulators and one for central bank librarians/information managers. If you are interested please look at our website on
http://www.centralbanking.co.uk/conferences.htm

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A question that came out the Reserve Asset Group meeting in London was: Are there any studies on the success of foreign exchange intervention in weakening currencies versus maintaining strong currencies? If you can help, email BWELLER@CENTRALBANKING.CO.UK

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Marko Skreb leaves the Croatian National Bank
July 12

The Croatian House of Representatives has formally appointed Zeljko Rohatinski as governor of the Croatian National Bank. At the same time, Governor Dr. Marko Skreb, who was interviewed in Central Banking journal earlier this year, was formally relieved from his duties.

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Will Bank of Japan end zero interest rates?
July 10

The Japanese yen has rallied on renewed speculation that the Bank of Japan may raise interest rates. Bank of Japan governor Masaru Hayami said on Monday that conditions were right for the central bank to end its policy of keeping interest rates at zero. The BOJ has never been entirely comfortable with the zero interest rate policy.

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Sabirin detained for another 40 days
July 10

Indonesia's Attorney General's office has extended by another 40 days the detention of suspended central bank governor Sjahril Sabirin. Attorney-General Marzuki Darusman said Sabirin would be detained until August 19.

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Finance secretary is new Fiji bank governor

The Fiji Constitutional Offices Commission has been appointed Mr. Savenaca Narube as Governor of the Reserve Bank of Fiji. Mr. Narube has succeeded Ratu Jone Y Kubuabola, who has retired and completed his term as governor on 15 May 2000. Mr. Narube was the Permanent Secretary for Finance for almost three years prior to his appointment as Governor. He joined the Reserve Bank in 1980 and held the position of Senior General Manager (Policy and Markets) before being appointed Permanent Secretary for Finance in 1997.

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Vietnam begins open market operations
July 12

The State Bank of Vietnam began its open-market operation in Hanoi on 12th July. All credit institutions, including joint-venture banks and branches of foreign banks, are eligible to join the short-term capital market. The market will on one side provide short-term loans to commercial banks, and on the other, help the latter diversify business operations and use capital sources flexibly and effectively. It will also help the State Bank control capital supply through the trading of treasury and central bank bills, and other valuable papers.

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Taiwan governor says repeat of financial crisis unlikely
July 12

Taiwan's central bank governor Perng Fai-nan said the possibility that a financial crisis may recur in Southeast Asia is low even with the present weakness of regional currencies. "The possibility for such a crisis is lower now than in 1997 as many countries in the region have strengthened their supervision of the financial sector," Perng told parliamentarians.

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Weakening baht good for Thailand
July 13

The recent weakening of the baht would help support economic recovery, given that exports remained the country's main engine for growth, said M.R. Chatumongol Sonakul, governor of the Bank of Thailand. On Tuesday, the baht dipped as low as 40.16 to the dollar, its weakest level for at least nine months. But M.R. Chatumongol said the baht remained within "optimal" levels, and said the central bank had no plans to intervene in the market.

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Philippines tightens bank deposit-taking
July 13

The Philippines central bank has tightened rules on deposit-taking by banks to fight money-laundering, a central bank circular said. Banks and non-bank financial institutions "should take reasonable measures" to record the true identity of their clients when conducting deals, particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, performing remittances and other large cash transactions, the circular said. "Unless otherwise prescribed under existing laws, anonymous accounts or accounts under fictitious names should not be allowed".

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Why the US should encourage dollarisation
July 13

Senator Connie Mack, chairman of the joint economic committee, said the US has an opportunity to export not only its products but its principles through the International Monetary Stability Act (IMSA). The International Monetary Stability Act, introduced by Mack, was marked-up today in the Senate Banking Committee. Mack said, "Why should the US encourage dollarisation? In a word: Trade. Right now, our two-way trade with 500 million people in Latin America is less than our trade with 31 million Canadians. As dollarisation puts more countries on a higher growth path and gives millions of people more purchasing power, we'll see larger markets for US goods.

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BIS on core principles for payment systems
July 10

The governors of the G10 central banks approved the publication of the BIS's new consultative report on the "Core principles for systemically important payment systems". The report was elaborated by the CPSS Task Force on Payment System Principles and Practices which comprises experts from G10 and emerging market central banks as well as from the IMF and the World Bank.
http://www.bis.org/publ/cpss34e.htm

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Euro is shredded
July 12

Millions of 100 euro notes are destined for the shredder, following a mistake at a German printing plant. All across Europe, printers are producing a total of 14 billion bank notes in time for the introduction of euro notes and coins in January 2002. Munich printers Giesecke & Devrient is one of two German firms printing euros. However, in its run of 100 euro notes, the company misprinted a security feature designed to stop forgers from using photocopiers to make fakes of the new currency. The fault was spotted only after Giesecke & Devrient had delivered 325 million of the 100-euro notes to the Bundesbank.

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Duisenberg on UK joining euro
July 7

The UK has satisfied all but one of the criteria for adopting the euro and is suffering economically by not joining, according to the president of the European Central Bank. Wim Duisenberg told an Italian newspaper: "Great Britain satisfies all the conditions to enter, except that foreseen for exchange rates."

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New Haiti central bank!
July 13

According to local radio reports, the Haitian government is about to spend 25m dollars to build a new central bank building in Port-au-Prince and a currency museum in Cap-Haitien. It has caused a bit of a furore in the media who say it is waste of public money!

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Bomb alert at Belgium central bank
July 12

Staff at the National Bank of Belgium had to evacuate the headquarters following a bomb alert, an official said. "It proved to be nothing serious," he said.

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PWC release second report on Ukraine
July 10

The National Bank of Ukraine (NBU) has released the second of three reports from a special examination by PricewaterhouseCoopers (PwC) of the NBU's foreign reserves management.
http://www.imf.org/external/np/sec/nb/2000/nb0053.htm

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CURRENCY CORNER
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Somalia central bank cracks down on old notes
July 11

The Central Bank of Somalia has said that pre-1991 Somali banknotes and new ones printed by factions in Somalia's southern regions and Puntland regional administration [northeastern Somalia] cannot be used in Somaliland, whether for the purpose of exchanging them with other currencies or using them to buy goods in the country. In a statement, the bank noted that the old and new Somali shilling currencies were back in the market places in Somaliland, despite a ban, adding that they were being bought and sold in Sahil and northern Awdal regions openly.

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RBA issues commemorative note
July 11

London Banknote and Monetary Research report that the Reserve Bank of Australia have announced that a commemorative 5 dollar banknote will be issued as part of its contribution to the celebrations of the Federation Centennial which begins next year. The new note will be released early in 2001 and is intended to circulate with the present issue. The special issue note will feature portraits of Sir Henry Parkes, and Catherine Helen Spence, prominent Australians during the time of Federation.
http://www.lbmrc.co.uk

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PAPERS OF THE WEEK
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CENTRAL BANKS USE OF DERIVATIVES AND OTHER CONTINGENT LIABILITIES
By Mario I. Blejer and Liliana Schumacher, International Monetary Fund

As central banks balance sheets come under increasing scrutiny, this very interesting paper by two IMF economists asks why central banks intervene in the derivatives market (looking at the pros and cons). Second, it suggests a methodology for analysing the whole spectrum of central bank contingent liabilities. They aggregate all on and off-balance sheet transactions in a single framework so as to be able to draw meaningful conclusions on the consequences of these central bank operations on a number of important policy issues such as the volume of central banks' available reserves, the potential burden arising from instability in the banking sector and overall solvency of the central bank.

The authors would like to have comments on this paper. Please email:
MBLEJER@imf.org
LSCHUMACHER@imf.org
http://www.imf.org/EXTERNAL/PUBS/CAT/longres.cfm?sk&sk=3548.0

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MUNDELL, THE EURO AND OPTIMAL CURRENCY AREAS
By Ronald McKinnon, Stanford University

A paper that asks whether Robert Mundell, the godfather of the euro, has contradicted himself in his Nobel Prize winning theories. Also discusses Asian and Latin American monetary union.
http://www-econ.stanford.edu/faculty/workp/swp00009.pdf

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GAMES FOR CENTRAL BANKERS: MARKETS VS. POLITICS IN PUBLIC POLICY DECISIONS
By Alessandra Casella

This paper questions the link between the establishment of a common currency among several countries and the necessity of political coordination. Relevant for all those Eurosceptics who worry about the Eurozone being bogged down by bureaucracy.
Centre for Economic and Policy Research Discussion paper 2496
http://www.cepr.org

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BOOK OF THE WEEK
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PRIVATE CAPITAL FLOWS IN THE AGE OF GLOBALISATION THE AFTERMATH OF THE ASIAN CRISIS
Edited by Uri Dadush, The World Bank, Marc Uzan, Executive Director of Reinventing Bretton Woods Foundation, and Dipak Dasgupta, Principal Economist, Development Prospects Group, The World Bank, US

This book is the first attempt by an international group of experts to understand the Asian crisis by taking into account the dynamics of private capital flows.

Contents
Part 1. The Asian Crisis in Perspective
Part 2. Debt Restructuring and Orderly Work-Outs
Part 3. Moral Hazard and Systemic Risk

Authors include V. Aggarwal, Michel Aglietta, R. Chang, Uri Dadush, D. Dasgupta, G. Esquivel, R. Garnaut, R. A. Leake, Markus Miller, Frederic Mishkin, A.C. Rogoff, Marc Uzan, A. Velasco, D. Wilson, L. Zhang

For more info on the book email Marc Uzan on: MDU@AOL.COM Also see website of the Reinventing Bretton Woods Foundation
http://www.rbwf.org

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6 July 2000

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HAPPY BIRTHDAYS
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John Vickers, Chief Economist and Executive Director at the Bank of England, is 42 on July 7.
J. Alfred Broaddus, President of the Richmond Federal Reserve Bank, is 61 on July 8.
Willem Frederik Duisenberg, President of the ECB, is 65 on July 9.
Dr. Klaus Liebscher, Governor of the Oesterreichische Nationalbank, 61 on July 12.

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PAPERS OF THE WEEK
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Inflation targeting in emerging market countries - Prof Mishkin
Self protection for emerging amrket economies - Prof Feldstein
Asset prices and central bank policy - Cecchetti, Wadhwani, Genberg, Lipsky
Core principles for payment systems - John Trundle, BoE

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NEW THIS WEEK
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Sir Samuel Brittan joins Central Banking
Caruana succeeds Rojo
Leiderman joins Deutsche Bank
Hans Meyer announces departure
Ecuador orders arrest of banking officials
New Aruba central bank governor
New Deputy Governor in Barbados
Bank of Canada appoints special adviser
New head of payment systems in Denmark
International Reserves Data
Trichets hails France's Euro 2000 victory
End to Hungarian crawling peg
Currency corner

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Sir Samuel Brittan joins Central Banking
July 6

Central Banking Publications is pleased to announce that Sir Samuel Brittan has joined our advisory board. Samuel Brittan is Britain's leading economic commentator and his columns in the Financial Times have for many years been required reading in central banks and finance ministries around the world. His most recent book is Essays, Moral, Political and Economic (Edinburgh University Press, 1998). He was knighted in 1993 for "services to economic journalism".
For our full advisory board, see
http://www.centralbanking.co.uk/aboutcbpl.htm#Advisory Board
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Caruana succeeds Rojo
July 3

Jaime Caruana, the head of banking supervision and an expert in financial markets, was chosen as the new governor of the Banco d'Espana, replacing Luis Angle Rojo. Rojo had been governor since 1992, a critical period for the bank and for Spain, as he carefully guided the Mediterranean country, to the surprise of quite a few economists, into the Eurozone. Curuana, 48, was a former Treasury director before he joined the banking supervision department at the central bank. Curuana was also Spain's representative at the Monetary Committee of the European Union from 1996-99. Rojo will do a two stint of university lecturing because of a law which prevents him from entering the private sector.
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Leiderman joins Deutsche Bank

Leonardo Leiderman, 49, the former head of research at Bank of Israel, has been appointed head of Latin American research in Deutsche Bank's Global Markets unit, following the path of former Bank of Israel governor Jacob Frenkel into the private sector. (Frenkel is head of FIG at Merrill Lynch.) At Deutsche Bank, Leiderman will be responsible for all Latin American economic research as well as being the firm's Chief Economist for Israel. He will report to former IMF man David Folkerts-Landau, who is Head of Research in Global Markets at Deutsche.
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Hans Meyer announces departure

Hans Meyer, the Chairman of the Swiss National Bank, announced that he would retire at the end of this year, but did not say who would succeed him at the high-profile helm of Switzerland's central bank. Meyer was long expected to step down next year when he reaches the mandatory retirement age of 65, but opted for a slightly earlier departure to make the transition as smooth as possible, an SNB spokesman said.
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Kraft reappointed for second term

It was third time lucky for Vahur Kraft, the governor of Bank of Estonia, when he was re-appointed to his second term on June 7. He had to face three stages of nominations before he was finally selected as the Bank board's top candidate. Kraft's nomination was later approved by Lennart Meri, the Estonian president. Kraft will have the critical task over the next seven years of guiding Estonia into the Eurozone.
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Ecuador orders arrest of banking officials
24 June

The Supreme Court in Ecuador has ordered the arrest of nineteen bank officials implicated in the collapse of the Filanbanco bank last year. The government took it over and pumped more than one-hundred million dollars into it. The officials, some from Filanbanco and others from the Ecuadorean Central bank, are accused of misuse of these government funds. The banking system was thrown into chaos in March 1999 when the government ordered a closure of all banks due to a crisis of liquidity. Since then, the government has intervened in three-quarters of the banks operating in Ecuador.
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New Aruba central bank governor

Dr. A.R. Caram is the new governor of the Central Bank of Aruba taking over the monetary policy reins from J.H du Marchie Savaas, who returned to de Nederlandsche Bank after five successful years as governor. Caram, who was the bank's executive director, has been at the bank since 1992. He was born in Suriname, but went to university and spent most of his career in the Netherlands. Before joining the Central Bank of Aruba, he worked at de Nederlandsche Bank.
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New Deputy Governor in Barbados
July 1

The Central Bank of Barbados announces the appointment of Mr. Darcy Boyce as a Deputy Governor. The appointment took effect from July 1, 2000. Mr. Boyce was a Partner with KPMG, Barbados and has been in charge of consulting for the past seven years. He is a Certified Management Accountant and holds a B.Sc. in Economics from the University of the West Indies Mona, Jamaica, and an MBA in Finance and Applied Economics from the University of Toronto, Canada.
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Bank of Canada appoints special adviser

Professor Angela Redish of the University of British Columbia has filled the visiting economist position of special adviser in the Bank of Canada for a one-year term beginning in August 2000. This position was created to bring additional views on monetary policy issues from outside the Bank and to increase the number of university and private sector economists with first-hand knowledge of the institution and its monetary policy role. Professor Redish is the third visiting economist appointed to the position. Professor David Laidler of the University of Western Ontario was the first.
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New head of payment systems in Denmark

Karlsten Biltoft will become head of payment systems at the Danmarks Nationalbank as of 1 August 2000.
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Bosnia payment system request

The Central Bank of Bosnia and Herzegovina is in the process of specifying and selecting a Bulk Clearing System. The central bank requests potential suppliers for information. Further information available on http:www.cbbh.ba and questions can be sent to e-mail address PLATNISISTEM@CBBH.BA
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International Reserves Data

As of June 29, 41 of the 47 subscribers to the Special Data Dissemination Standard (SDDS) are publishing data on international reserves and foreign currency liquidity according to an internationally agreed template. The information, which is available on the web sites of the countries' central banks or finance ministries, provides comprehensive and timely data on these subscribers' international reserves and related obligations. In addition, New Zealand that does not subscribe to the SDDS also publishes data according to the template. For the links to the data, see http://www.imf.org/external/np/sec/nb/2000/NB0049.htm
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Trichets hails France's Euro 2000 victory
July 4

Following France's victory in the Euro 2000 football cup, Bank of France governor Jean-Claude Trichet sounded as if he were in the stands cheering when he told a breakfast radio programme he was sure the 2-1 win would help the economy. "This will be fantastic for France's morale," Trichet enthused. "I think there will be consequences for the economy, just like two years ago. We're European and world champions in other areas too," he reminded his listeners. "We have the best balance of payments surplus in Europe, the second in the world. We have economic growth a bit stronger than the other big European countries."
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End to Hungarian crawling peg
July 3

Hungary is "getting close" to meeting the conditions that would enable it to end its crawling peg exchange rate regime, National Bank of Hungary governor Gyorgy Suranyi told the press in Salzburg on Thursday. Suranyi was attending the World Economic Forum's annual meeting on Central and Eastern Europe. Suranyi said that the key condition for the abandonment of the crawling peg regime would be an inflation rate of 4%-5%. The central bank governor forecast that inflation would fall to around 7% by the end of this year and expected sustained progress in reducing inflation. The National Bank is expected to reduce the rate of monthly devaluation from 0.3% to 0.2% later this year.

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CURRENCY CORNER
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Liberia first series of banknotes from Central Bank

The new Central Bank of Liberia (formally the National Bank) have issued a new series of banknotes, the first time that a complete series of Liberian banknotes has been released for circulation since 1880. They are now seeing greater circulation and gaining wider acceptance throughout the country. The notes were issued as a measure by the central bank to create a more unified currency. At present, Liberia is partially dollarised. The new national currency is officially valued at one to one with the dollar.

London Banknote and Monetary Research report that the contract to strike the euro circulation coins for Luxembourg has been awarded to the Royal Dutch Mint who began the first of their strikes at a ceremony on Tuesday the 27th June in the presence of Crown Prince Henri whose effigy, will appear on the coins. The coins will be minted in 2000 and 2001 and were designed by Ms. Yvette Gastauer-Claire. Crown Prince Henri will assume the title of Grand Duke when his Father Grand Duke Jean retires on the 28th September.

For illustrations and more info, including the first pictures of Japan's first 2000 yen note, see http://www.lbmrc.co.uk

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PAPERS OF THE WEEK
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INFLATION TARGETING IN EMERGING MARKET COUNTRIES
By Frederic Mishkin, Columbia Univeristy
Email: FSM3@COLUMBIA.EDU

This controversial and interesting paper by Professor Mishkin discusses the advantages and disadvantages of inflation targeting as a monetary policy strategy specifically in emerging markets. He concludes that inflation targeting may not be appropriate for countries that have financial systems vulnerable to exchange rate volatility. For other countries, however, that have more stable financial sector, inflation targeting may be highly beneficial, providing transparency and accountability to monetary policy. He cites the examples of Chile in the 1990s and Brazil since 1999 as example where inflation targeting has proved a success. A must read for any inflation targeting country.

It is published in the Amercian Economic Review, May 2000.
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SELF-PROTECTION FOR EMERGING MARKET ECONOMIES
Martin Feldstein, National Bureau of Economic Research
Email: FELDSTEIN@NBER.ORG

An excellent paper by Professor Feldstein. Its main conclusions:
(1) Reserves reduce the chance of currency crises. They reduce the chance of attacks from speculators and allow an orderly adjustment of internal imbalances.
(2) He discusses the idea of IMF acting as an international lender of the last resort and the idea of "pre-approval". He says the IMF does not have enough capital to be ILLOR.
(3) Suggests two ways in to increase liquidity: low cost increase in FX reserves investing in a broad range of assets, and a new voluntary national credit facility collaterised with export earnings.
(4) He says intervention hurts speculators by removing the "one way bet". Speculators are hurt because they have to pay higher rate of interest on borrowed funds than on dollars in which they invest.
(5) He says the Chilean capital controls should be seriously considered as a way for preventing excessive short term capital flows.
(6) The cost of holding reserves must be evaluated against the cost of a currency crisis. The challenge is to find the least costly way of increasing liquidity.

Available for NBER website (http://www.nber.org), free to all from developing countries.
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ASSET PRICES AND CENTRAL BANK POLICY
By Stephen Cecchetti, Hans Genberg, John Lipksy and Sushil Wadhwani

This paper tackles what is one of the most important questions confronting monetary policy - how should central banks view movements in equity, housing and foreign exchange markets? Its controversial conclusion is that central banks should assign a greater role to asset prices. But do central banks implicitly target asset prices anyway, and will targeting asset prices just lead further trouble ahead - i.e. moral hazard in the markets?

A full analysis of this paper will feature in a future Newsmakers. It is available from http://www.cepr.org
ISBN: 1 8981 28 53 7
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CORE PRINCIPLES FOR SYSTEMICALLY IMPORTANT PAYMENT SYSTEMS
By David Sawyer and John Trundle (Bank of England, Market Infrastructure Division)
Email: John.Turndle@bankofengland.co.uk

This paper was recently published in the Bank of England's "Financial Stability Review", Issue 8, June 2000, page 126-135. Mr Trundle is Chairman of the CPSS Task Force on Payment System Principles and Practices that is currently developing the core principles. The article can be accessed directly at http://www.bankofengland.co.uk/fsr/fsr08art6.pdf
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CURRENT ISSUES IN ECONOMICS AND FINANCE
New York Fed research department

"Rapidly Rising Corporate Debt: Are Firms Now Vulnerable to an Economic Slowdown?" by Carol Osler and Gijoon Hong (vol. 6, no. 7) http://www.ny.frb.org/rmaghome/curr_iss/ci6-7.html
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TURKISH INFLATION REPORT

The latest Central Bank of Turkey inflation report: http://www.tcmb.gov.tr/~research/ingil/cpage.html

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© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.

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