Centennial Precious Metals, Inc: Serving Gold Coin & Bullion Investors Since 1973
(Home Page)	(How to Buy Gold)	(Gold Coin Images)	(Daily Market Report)	(Live Gold Price)
(First-time Buyers)	(News & Views)	(ABCs of Gold Book)	(Gold IRA)	(Buy Gold Coins Online)
(Live Gold Coin Prices)	Online Information Packet			(About Us)

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.

22 June 2000

**************************************
FORTHCOMING MEETINGS
** Asia-Pacific central bank heads

PAPERS ON FOREIGN RESERVES
** The Currency Composition of Foreign Exchange Reserves
** Liquidity as a safety net

CENTRAL BANKERS IN THE NEWS
** Indonesia's central bank chief detained
** All eyes on Anwar Nasution
** Knighthood for Eddie George
** David Archer chief economist at RBNZ
** Lamfalussy heads "wise men"

NEWS THIS WEEK
** Bank Indonesia has positive capital
** Czech banking crisis
** and Tosovsky seeks post at EBRD
** Brazil springs rates surprise
** MAS announces end to cross shareholding
** Gerashchenko says no to weak rouble
** Sri Lanka devalues the rupee
** North Korea finally growing
** Solomons faces financial ruin as crisis draws on
** $A hit two-month high
** Yugoslavian central bank new measures to fight inflation
** Cuba banking system not threatened by speculation
** Settlement systems disclosures on BIS website
** Central Bank of Cyprus orders bank closure
** Riksbank to drop cheap loans for directors
** Klein: Pension funds should invest abroad
** RBI recruitment policy under review
** Investec to sell gold to People's Bank
** Estonia's central bank hikes growth estimate

DUISENBERG THIS WEEK
** Duisenberg embarrasses UK
** Denmark can join tomorrow
** Irish inflation is "worrisome"

CURRENCY CORNER
** Armenia announces international banknote tender

PAPERS OF THE WEEK
** Financial Stability and Macroeconomy
** NY Federal Reserve publication

BOOK OF THE WEEK
** European Central Bank

**************************************
HAPPY BIRTHDAYS
**************************************

Helmut Schieber, member of the board of the Deutsche Bundesbank since 1992, is 62 on June 25.
Colleen K Strand, first vice president of the Minneapolis Fed, is 57 on June 27.
Leonard Ladislas Tsumba, Governor of the Reserve Bank of Zimbabwe, is 57 on June 27.

**************************************
FORTHCOMING MEETINGS
**************************************

Asia-Pacific central bank heads to hold meeting in Seoul
June 21

The Bank of Korea (BOK) will convene the fifth Executives Meeting of East Asia and Pacific Central Banks (EMEAP) in Seoul July 7. Eleven heads and officials of central banks in the Asia-Pacific region will take part in the planned meeting to exchange views on regional and global economic trends. The delegates will also be briefed on activities of three working groups concerning payment systems, financial markets and bank supervision. The day after the EMEAP meeting, the BOK will also hold an international symposium on "change in the financial environment and the role of central banks" to commemorate its 50th anniversary.

If you would like to annouce forthcoming meetings on Newsmakers, email BWELLER@CENTRALBANKING.CO.UK

**************************************
PAPERS ON FOREIGN RESERVES
**************************************
Thank you for your suggestions on articles on foreign reserves.

"The Currency Composition of Foreign Exchange Reserves: Retrospect and Prospect," by Barry Eichengreen and Donald Mathieson http://emlab.berkeley.edu/users/eichengr/helsinki2.pdf

"Liquidity as a safety net: A few comments on liquidity risk" By Sylvia Piterman, Head of Foreign Currency Department, Bank of Israel http://www.bankisrael.gov.il/deptdata/neumim/neum012e.htm

If you have any more suggestions, please email RPRINGLE@CENTRALBANKING.CO.UK

**************************************
CENTRAL BANKERS IN THE NEWS
**************************************
Indonesia's central bank chief detained

Prosecutors in Indonesia have detained the country's central bank governor, Sjahril Sabirin, following a politically charged row over the Bank Bali scandal. Investigators from the attorney general's office questioned Mr Sabirin for nine hours before detaining him. He will be detained for twenty days.

All eyes on Anwar Nasution

All eyes have now turned to Sabirin's temporary stand-in, the central bank's senior deputy governor Anwar Nasution. Many speculate that former University of Indonesia (UI) professor Anwar will likely succeed Mr Syahril. Before joining the central bank's board of executives in April 1998, the 58-year-old was known for his criticism of the government. His most memorable remark on the central bank, ironically, was that it was a ""nest of bandits''. Born in Sipirok, North Sumatra, Mr Anwar is a graduate of UI, the Harvard School of Government and Tufts University in Massachusetts. His curriculum vitae reveals a teaching stint at the University of Helsinki and brief experience at the Asian Development Bank, International Monetary Fund and World Bank.

Knighthood for BOE governor
June 17

Sir Eddie George, governor of the Bank of England, was knighted in the Queen's birthday honours list. George is only the third serving governor in the past 100 years to be knighted, after Sir Leslie O'Brien in 1967 and Sir Walter Cuncliffe in 1917. Willem Buiter, former MPC member who is now chief economist at the European Bank for Reconstruction and Development, was given a CBE for his service to economics.

David Arhcer is new chief economist at RBNZ
June 19

David Archer has been appointed as the new chief economist at the Reserve Bank of New Zealand, replacing Adrian Orr. Mr Archer will take up the role in early July. He is currently the Bank's assistant governor and is in charge of the financial markets department.

Lamfalussy to head "wise men"
June 15

Alexandre Lamfalussy, former head of the European Monetary Institute and BIS, is to chair a group of wise men charged with investigating how to achieve a single market in financial services and how to coordinate regulation across Europe.

**************************************
NEWS THIS WEEK
**************************************

Bank Indonesia not bankrupt after all

Bank Indonesia's assets exceeded its liabilities in a balance sheet published on June 19, meaning the central bank does not need fresh capital as suggested in a state audit last December. The central bank had 476.3 trillion rupiah (S$95 billion) in assets as of December last year and 392.9 trillion rupiah in liabilities.
**************************************
Czech banking crisis

Last week, the third largest bank in the Czech republic, IPB, has been placed under forced administration after worried customers withdrew more than six hundred million dollars in one week. The crisis of confidence followed reports that IPB's reserves were below the permitted level and that its biggest shareholder, Japan's Nomura group, was unwilling to inject more money. A finance ministry spokesman said IPB's assets were under the control of the central bank and a special police unit had occupied IPB's headquarters.
**************************************
Tosovsky seeks post at EBRD

Josef Tosovsky, the governor of the Czech National Bank, has announced that he is seeking a senior post with the European Bank for Reconstruction and Development. The news comes at a crucial time as the central bank is trying to fend off legislative curbs on its activities, proposed by the ruling Social Democrats and the Civic Democratic Party. The two parties have sought legal and constitutional amendments that would affect the nomination of the central bank's board members, cut the pay at virtually all levels within the bank, and impose internal controls on both operations and the setting of monetary policy.
**************************************
Brazil springs rates surprise
June 22

Brazil gained its lowest nominal interest rates for over a decade after the central bank surprised markets by knocking one point off its main rate. The monetary committee of the central bank (Copom) said it cut its base Selic interbank rate to 17.5 pct from 18.5 pct due to improved prospects of low inflation. The central bank also adopted a downward bias on future rate moves
**************************************
MAS announces end to cross shareholding
June 20

Singapore's central bank, the Monetary Authority of Singapore, has announced Draconian measures to force banks into divesting their non-financial businesses which may lead to the restructuring of billions of dollars in assets. Cross-shareholdings between banking and non-financial associates will be unwound, name-sharing and common ownership cease and separate management structures set up. Lee Hsien Loong, MAS chairman and deputy prime minister, said the separation was aimed at limiting the risks to the banks of contagion, enhancing market discipline, increasing transparency and ensuring that bank management focused on core business.
**************************************
Gerashchenko says no to weak rouble
June 20

Russian central bank chief Viktor Gerashchenko fired back at the government Monday in the spat over exchange rate policy and said the bank would chart its own monetary course to make sure the rouble was not pushed lower. "We're independent enough to make decisions ourselves," Gerashchenko told reporters as he left an investment conference. He said recent calls by Prime Minister Mikhail Kasyanov for preventing the "unjustified strengthening" of the rouble had had little impact on the central bank.
**************************************
Sri Lanka devalues the rupee
June 20

The Sri Lanka government has announced it will let the rupee fall in value against the US dollar in a bid to boost the country's exports. The effective devaluation comes in the wake of increased defence spending as the government seeks to bolster the armed forces in their war against Tamil Tiger rebels. "The central bank has now decided to allow the market further freedom to determine the exchange rate...the spread between its buying and selling rates for the US dollar will be widened to 5% (from the earlier 2%)," the Central Bank of Sri Lanka said in a statement. Central bank governor A.S. Jayawardena said that he expected the rupee to lose up to 4% of its value.
**************************************
North Korea finally growing
June 21

According to a report by the Bank of Korea (the central bank of South Korea) the economy in the north grew last year by 6.2%, the first year of expansion since 1989. However the report, based on information from the South's intelligence agency and its unification ministry, highlighted the economic gulf between the two countries. Per capita GDP in the north is $714, a twelfth of that in the South. Seventy percent of the North's hard currency came from recent foreign aid aimed at famine relief.
http://www.bok.or.kr/index_e.html
**************************************
Solomons faces financial ruin as crisis draws on
June 21

A quick resolution of the political impasse in the Solomon Islands looks unlikely. According to the governor of the Solomon Islands' Central Bank the country is already on its knees. But there is to be no speedy resolution to the crisis. The Malaita Eagle Force (MEF), which took over the capital two weeks ago, has achieved its first objective, the prime minister Bartholomew Ulufa'alu has resigned. But the parliamentary meeting to choose his replacement has been set down for June 28.
**************************************
$A hit two-month high
June 16

Last week, the Australian dollar hit a new two-month high, as overseas investors continue to reverse their negative perceptions of the currency.
**************************************
Yugoslavian central bank new measures to fight inflation
June 20

Yugoslav National Bank [NBJ] governor Dusan Vlatkovic has proposed new measure to control inflation. "Due to the possibility of inflation and the pressure on the exchange rate, we will propose certain changes and additions to the monetary policy, with a clear emphasis on not making decisions on directing funds that we had last year," Vlatkovic said. He added that the central bank and the business banks should support the needs of export production, agriculture and the energy sector with their loan policy, as well as give loan support for the construction of apartments.
**************************************
Cuba banking system not threatened by speculation
June 19

Francisco Soberon, minister president of the Cuban Central Bank, emphasized the security and protection evident in the eight banks and 12 financial companies that make up the Cuban banking system. Soberon noted that the Cuban banking system is one of the few not threatened by speculation, money laundering, and fraud in general.
**************************************
Settlement systems disclosures on BIS website
June 19

The latest addition to the disclosures accessible via the BIS website is the contribution from SIS SegaInterSettle AG The Swiss Securities Services Corporation (dated January: 2000). In February 1997 the CPSS/BIS published the "Disclosure framework for securities settlement systems" that was elaborated together with IOSCO (http://www.bis.org/publ/cpss20.htm). Many securities settlement systems have in the meantime made information on their system's operation and its allocation of risks available to the general public (http://www.bis.org/publ/cpss20resp.htm).

The information relating to SIS SegaInterSettle AG can be accessed from that page or directly at http://www.sisclear.com/10000/E10111.htm
**************************************
Central Bank of Cyprus orders bank closure
June 19

The Central Bank of Cyprus has ordered the closure of the Nicosia branch of Beogradska Banka, a state owned Serbian bank closely linked with President Slobodan Milosevic, on grounds of insolvency. A central bank official said Beogradska's licence to operate an offshore banking unit has been revoked last month.
**************************************
Riksbank to drop cheap loans for directors
June 21

The Sveriges Riksbank was forced to abandon its policy of giving its directors cheap loans after revelations of the practice prompted sharp criticism from politicians and newspapers. Four of the bank's six directors had been given loans at the discount rate plus one percentage point, a rate cheaper than offered by commercial banks. The discount rate is 2.25 per cent compared with a housing loan rate of just over 7 per cent available to most Swedes.
**************************************
Klein: Pension funds should be encouraged to invest abroad
June 15

Pension funds should have the freedom to invest in foreign currency and foreign equities, said Bank of Israel Governor David Klein. The central bank has been advocating for several years structural changes in pension funds, which will require them to increase their investments in the local capital market. Klein, however, said these funds should not be limited to investing in the local bourse but also be allowed to invest abroad, as the domestic market is not big enough to absorb their investments. He was speaking at an institutional investor's conference in Tel Aviv.
**************************************
RBI recruitment policy under review
June 18

India's finance ministry is looking into complaints related to recruitment and promotion policies of the Reserve Bank of India (RBI) that has lead to gross overstaffing and frustration amongst officers of the institution.
**************************************
Investec to sell gold to Chinese central bank
June 14

Investment bank Investec Group said that it had signed an agreement with the People's Bank of China to supply it with a minimum of 15 tonnes of gold a year for an unlimited period. "The agreement is for an unlimited period of time, providing for the supply of approximately one ton of pure gold every three weeks," Investec said in a statement.
**************************************
Estonia's central bank hikes growth estimate
June 18

Western Europe expects the highest rate of economic growth this year since 1990 due to higher exports and therefore Estonia's outlook is good in a short-term perspective, said Andres Saarniit, head of the economic policy department at the central bank. The central bank expects growth of 5.5% in 2000. Inflation should remain under 4 per cent this year, according to a central bank estimate.

**************************************
DUISENBERG THIS WEEK
**************************************
Duisenberg embarrasses UK

Wim Duisenberg, President of the European Central Bank, embarrassed the UK government by characterising British arguments against joining the euro as "psycho-political". In a later press conference the prime minister, Tony Blair, insisted that economic considerations were paramount in the government's position on the euro. The UK government has promised to hold a referendum on the single currency and campaign for a yes vote once five economic tests defined by the chancellor, Gordon Brown, have been met.

Duisenberg also raised fears within the UK government by talking about a "window" for UK entry into the Europe. This seemed to suggest that the opportunity for entry might last only a limited time, raising the spectre of the UK never managing to join. Duisenberg was speaking on June 20 to the European Parliament's Committee on Economic and Monetary Affairs. See the Committee's website for details:
http://www.europarl.eu.int/dg2/ECON/EMU/EN/default.htm
**************************************
Denmark can join EMU tomorrow

At the committee, Duisenberg also said Denmark could become a member of the euro area 'tomorrow' because it fulfills all relevant convergence criteria. "Denmark as a member of the ERM (European exchange rate mechanism), and soon the only member of the ERM, is performing in a way by which it fulfills all the convergence criteria. It could become a member of the euro zone tomorrow, so to speak."
**************************************
Irish inflation "worrisome"

Duisenberg also described Irish inflation as 'worrisome' and warned the Irish government that there is nothing the ECB can do to tackle the problem.

**************************************
CURRENCY CORNER
**************************************
Announcement of banknote tender

The Central Bank of Armenia announces international tender for printing and supply of banknotes of a new type. All organizations that have experience in printing banknotes and have ISO-9001 or ISO-9002 standard certificate can participate in the tender. Tender submissions should be submitted to the Central Bank of Armenia no later than 6 p.m. July 14,2000 to the address below. Mr. G Tumanyan
6, Nalbandyan,
375010, YEREVAN
Republic of Armenia
Central Bank of Armenia
Tel: (3742) 589734
Fax: (3742) 567423
E-mail: tumanyan@cba.am
http://www.cba.am/ann/ann.htm

**************************************
ANNUAL REPORTS
**************************************
Departing Rojo warns that Spain may overheat

Luis Angel Rojo, governor of the Banco de España, whose term at the central bank ends in July, has warned that the ECB monetary policy may be too loose for Spain. Presenting the Bank's annual report he said that the ECB's "relatively permissive" monetary stance was "excessively loose" for Spain. The Spanish government recently raised its inflation forecast for 2000 to 4%. Earlier in the year a Bank of Finland report estimated that the Spanish economy would need interest rates of slightly above 4% in order to prevent overheating.
http://www.bde.es

**************************************
PAPER OF THE WEEK
**************************************
Financial Stability and Macroeconomy
By Frederic Mishkin, Graduate School of Business, Columbia University

An interesting survey paper which discusses whether a central bank's twin goals of price and financial stability can ever conflict. He concludes that "policymakers and particularly monetary policymakers should not be single-minded in always focusing on price stability but also need to focus on financial stability in designing their policies." But he goes on to say that a focus on price stability is by no means incompatible with the financial stability goal. "Price stability," he says, "can help promote financial stability because it leads to longer duration debt contracts and a sounder currency."
**************************************
New York Fed Research Department

The latest volume of the Federal Reserve Bank of New York's policy-oriented flagship publication has just been published. Volume 6, Number 2 (July). Articles include: "The Timing and Funding of Fedwire Funds Transfers," by James McAndrews and Samira Rajan; "Capital Ratios as Predictors of Bank Failure," by Arturo Estrella, Sangkyun Park, and Stavros Peristiani.
http://www.ny.frb.org/rmaghome/econ_pol/2000.htm

**************************************
BOOK OF THE WEEK
**************************************
The European Central Bank - A bank for the 21st Century
By Francois Naudin
http://www.kogan-page.co.uk

Francois Naudin, a French financial journalist, takes a long, hard look at the ECB. He starts with an historical context and revisits some basic notions about money and the relation between value and money, before dealing in detail with the structure and role of the central bank, its ethos and its financial aims. He asks: what are the ECB's terms of engagement, how does it operate, how is it likely to react to economic forces and how it will influence economic development in the 21st century?

**************************************

14 June 2000

**************************************
CONFERENCES
** Re-evaluating the role of external reserves
** Murray Sherwin on the use of reserves
** Caribbean central bank information technology

NEWS THIS WEEK
** Bank Indonesia deputy governor quits
** Bank of Israel research head steps down
** Goodhart wanted to stay on at Bank
** Steadie Eddie waits for the Pink Elephants
** FSA: Legal at last
** Leave the Bank of Korea alone says professor
** Korea interest rates unchanged
** Australia as a financial centre
** Chatumongol at Bank of Thailand/World Bank conference
** World Bank loan to Ukraine
** Economist named as new Polish finance minister
** Cronje paid R300 000 to Reserve Bank official
** Central bank websites list updated
** Quest for central bank independence

PAPER OF THE WEEK
** Optimal exchange rate policy: The case of Iceland

BOOK OF THE WEEK
** Financial Structure and Monetary Transmission in Europe

**************************************
HAPPY BIRTHDAY!!
**************************************

** Merab Kakulia, vice president of the National Bank of Georgia, is 39 on June 19
** Ian McFarlane, governor of the Reserve Bank of Australia, is 54 on June 22.
**************************************
CONFERENCES
**************************************
RE-EVALUATING THE ROLE OF EXTERNAL RESERVES
June 23, Howard Hotel, London

Central Banking Publications has held several meetings of central bank reserve managers and international institutions to discuss trends in reserve management policies and has also published surveys of central banks' attitudes to reserve management. These meetings did not debate in depth, however, the basic question of the role and function of external reserves. At a time when some academic economists are again questioning whether the benefits of holding reserves exceed their cost, Central Banking is bringing together a small group of economists, financial analysts and central bankers to discuss the issues involved. The purpose is to explore possible future scenarios for the development of reserve policies and intervention and to discover whether any consensus can be reached in the group on the future role of reserves in national policies and the monetary system.

Clearly, these questions are inter-related. Future possibilities for intervention will depend crucially on the type of exchange rate policies adopted by individual countries. Here there is currently a paradox: it is fashionable to say that countries should choose between either fixed rates or freely floating rates - the two extreme ends of the spectrum of possible exchange rate policies where there is no obvious need for reserves at all. Ever since the advent of floating exchange rates in the 1970s, there has been no shortage of academics calling for free floating and arguing that reserves are of no practical benefit. Yet in practice most central banks continue to value their reserves, and indeed since the Asian currency crisis most Asian countries have shown a preference for reserve accumulation. In Europe, meanwhile, despite the weakness of the euro, the ECB has not seen fit to deploy any of its massive reserves to intervene to support the new currency. The UK has been equally reluctant to intervene to counter the excessive appreciation of sterling.

These are among the questions that will be discussed by the group at its meeting on June 23. A brief report on the proceedings will appear in Newsmakers and a full report will appear on the website at http://www.centralbanking.co.uk

If you are a central banker and would like to come, please contact Central Banking Publications on + 44 20 7836 3607

We would also welcome any research papers or articles written on this subject which could be discussed at the seminar. Please send to the editor Robert Pringle on RPRINGLE@CENTRALBANKING.CO.UK
**************************************
Murray Sherwin on the use of reserves

In fact, Murray Sherwin, deputy governor of the Reserve Bank of New Zealand, was speaking on exactly this subject at the World Bank's annual conference on reserve management held on May 9. RBNZ has not intervened in the FX markets since 1985 - probably some sort of "world record" among developing and developed countries alike - yet the bank still holds significant reserves ($2.5bn or 10 weeks of import cover). What is the point of holding reserves, Mr. Sherwin asks, if you never use them? The answer is based on three propositions:

(1) Fx markets, more than most financial markets, are prone to becoming dysfunctional under stress.

(2) Dysfunction in fx markets may carry significant externalities affecting parties well beyond those directly involved in the market.

(3) There may be circumstances in which the central bank, via direct market operations, can usefully accelerate the return to more normal market trading.

Dysfunctions to the market primarily relate to liquidity concerns, rather than "overshooting" per se. By intervening in the markets, central banks can assist in unlocking logjams between market players at times when credit quality concerns are impacting on the trading capability of market participants. Mr. Sherwin also says that central banks have an advantage in this situation of not being subject to the same risk/return framework that commercial banks operate under. Mr Sherwin highlights what Alan Greenspan calls the "essence of central banking" - the role of the central bank in deciding what level of risk should be borne by the private sector and what level should be borne by the central bank and government.

http://www.rbnz.govt.nz/speeches/sp000509.htm
**************************************
CARIBBEAN CENTRAL BANK INFORMATION TECHNOLOGY
June 12-16, Central Bank of Haiti

Banque de la Republique de Haiti is hosting the eleventh annual conference of regional central banks information systems specialists from June 12th to June 16th. The following Caribbean countries are represented: Aruba, Haiti, Barbados, Bahamas, Belize, Guyana, Jamaica, Nederlanse Antillen, Surinam, Trinidad and Tobago, Eastern Caribbean.

For more information, please email the Head of IT at Central Bank of Haiti on JBDUBOIS@BRH.NET - or call Mr. Dubois at 509-299-1180 or to reach for the Governor's secretary: 509-299-1066.
**************************************
NEWS THIS WEEK
**************************************
Bank Indonesia deputy governor quits
June 12

Bank Indonesia has said that deputy governor Subarjo Joyosumarto would resign from next month to become head of an international training centre, but denied any link with a row between the central bank and the government. "As of July 1, Subarjo will resign as a Bank Indonesia deputy governor,'' senior deputy governor Anwar Nasution said. He said Mr Joyosumarto would become head of the Kuala Lumpur-based South-east Asian Central Banks (Seacen) training and education centre. "Bank Indonesia has already approved his resignation,'' Mr Nasution said. Mr Joyosumarto's term would have expired on May 17 next year. Mr Nasution denied that the resignation was linked to calls for central bank governor Sjahril Sabirin to resign. ""This has nothing to do with that issue,'' he said. Deputy governor Miranda Goeltom told reporters that the bank had not prepared anyone to replace Mr Joyosumarto. She added that it was Indonesia's turn to fill the Seacen position. ""The position has been vacant for some time...(the centre) had asked for him.''
**************************************
Bank of Israel research head Leiderman steps down
June 12

Leo Leiderman, head of the research department at the Bank of Israel, announced his retirement from the bank. The central bank did not offer any explanation for the sudden resignation and declined to deny rumors that it stemmed from disagreements with Bank of Israel Governor David Klein. Sources close to Leiderman confirmed, however, reports that Klein and Leiderman disagreed on many topics. Most recently, Leiderman did not agree with the Ben-Bassat tax-reform plan in its present structure, pointing to the technical inabilities of implementation, and called for a gradual adoption of the reform. His comments were immediately followed by an official statement of the Bank of Israel, which said they do not reflect the central bank's opinion.

It is not known yet who will replace Leiderman, who has been in charge of research at the Bank of Israel since 1996. It is widely believed the replacement will be an outside appointment. Following Leiderman's resignation, Meir Sokler, who replaced Klein as head of the monetary department, is considered the second-in-command.
**************************************
Goodhart wanted to stay on at Bank
June 10

Professor Charles Goodhart, who was a member of the Bank of England's monetary policy committee, has said that he was disappointed not to be asked to serve another term and he expressed some concern over the rather opaque process by which external MPC members are chosen. This criticism is rather ironic considering the Treasury's obsession with transparency.

Professor Goodhart was replaced in June by Christopher Allsopp having completed his three-year term. Yet he received not a word of explanation from the government why he was not reappointed. Although it would have been possible for Goodhart to serve another term, the Chancellor Gordon Brown who appoints the four external MPC members, might have felt that Professor Goodhart was not "external" enough and that the MPC needed fresh blood. Professor Goodhart also reaches his official retirement age next year.
**************************************
Steadie Eddie waits for the Pink Elephants
June 13

Eddie George, governor of the Bank of England, argued today that the UK's arrangements for dealing with a systemic banking crisis remain untested. Commenting on the new arrangements by which the Bank, the FSA and the Treasury cooperate via a financial stability committee, he said, "it is early days to begin to assess the new arrangements from this perspective. It is true that we have not had any serious threats to financial stability in this country over the past three years, but I suppose that putting that down to the new structure would be a bit like the man who claimed that the absence of pink elephants in Hyde Park was the direct result of his clicking his fingers there on his regular morning walks. We really haven't been tested."

He repeated his concern that the transfer of supervision to the FSA might deprive the Bank of "information from, or contact with, the banking sector which might reduce our capacity to exercise our responsibility for the stability of the financial system as a whole." However, he went out of his way to praise the "tremendous" job which Howard Davies had made of the transfer, and commented that not having to worry about banking supervision may have allowed him to keep his hair (Howard Davies, who was present at the speech, is bald).
**************************************
FSA: Legal at last
June 13

The UK Financial Services Authority (FSA) is finally on the verge of assuming its full legal powers. The Financial Services and Markets Bill has now passed through all its Parliamentary stages and will receive Royal Assent (which is a formality) within days. The bill was first published in draft form in July 1998. The final version has gone through 200 hours of debate in Parliament, during which time it was subject to 2000 amendments. At 230 pages it is one of the longest pieces of UK legislation since the war. Howard Davies, addressing a conference on the future of London as a financial centre, was keen to point out that it would still be some time before all parts of the new regime were "switched on". One key step is the "grandfathering" process which ensures that institutions authorised under the old legal regime are able to carry that authorisation over. Davies was upbeat about the role of the FSA in London's success as a financial centre, pointing to a year-on-year rise in financial services firms seeking authorisations as evidence of the attractiveness of the new regime. For the full text of Davies' speech and background about the FSA's activities see: http://www.fsa.gov.uk/
**************************************
Leave the Bank of Korea alone, says professor
June 2

Major government ministries and institutions could undermine the authority of the Bank of Korea by openly debating monetary policy, a scholar warned on June 2. Sogang University professor Kim Byung-joo, speaking at a seminar commemorating the 50th anniversary of the central bank, said state agencies still discuss the pros and cons of monetary policy despite the need for full government support of the bank's strategies. He said such second-guessing weakens the Bank of Korea's credibility. The government has overlooked the bank's autonomy, given that the average tenure of 20 bank heads in the past half century was just two years and five months, well under the four-year term stipulated by law...
**************************************
Korea interest rates unchanged
June 8

...But it was business as usual at the Bank of Korea. The decision-making monetary policy committee decided to maintain the overnight call rate at its current level of around 5 percent. Chon Chol-hwan the central bank chief said that local financial markets have been recovering gradually from recent uncertainty stemming from liquidity problems at the Hyundai Group.
**************************************
Australia as a financial centre
June 9

Australia faced a number of obstacles in achieving its ambition of becoming a global financial centre, Ric Battellino, Reserve Bank of Australia assistant governor, told a Senate Select Committee hearing into Superannuation and Financial Services. The federal government recently announced a number of initiatives to promote Australia as a major financial capital, including establishing a taskforce to look at the issue and reopening a Treasury office in Singapore. "While Australia has some very good advantages as a financial centre, we also have some disadvantages and two in particular are very significant," Mr Battellino told the hearing. One major drawback for Australia was that it was not a capital exporting country. The other disadvantage was the long distance from the major population centres of the world, and thus, the customers, who ultimately drive financial activity. Mr Battellino said while technological advances were overcoming the barriers of distance, it also proved a double-edged sword. "While it's making easier for Australia to sell products into Asia for example, it's also making it easier for financial firms out of North America and Europe to sell financial products into Asia," he said.
**************************************
Chatumongol at Bank of Thailand/World Bank conference
June 11

Fostering good corporate governance in the financial system is a key component of guarding against future crises, speakers said on Saturday at a conference on corporate governance, hosted by the Bank of Thailand and the World Bank. Chatumongol Sonakul, the central bank governor, said regulators were moving to strengthen the roles and responsibilities of directors toward stakeholders. Risk management systems were being bolstered, while bank supervisors would be more pro-active in warding off problems to minimise damage to the system. Local financial institutions, which have focused largely on raising new capital and improving services in recent years, have to be more active in strengthening risk controls, M.R. Chatumongol said.
**************************************
World Bank loan to Ukraine
June 9

The World Bank is considering a $1-1.2 billion, three-year loan package for Ukraine, senior bank officials said. World Bank Vice President Johannes Linn told a press conference in Kyiv Friday that he sees good prospects for future cooperation between the World Bank and Ukraine.

In his assessment, the situation has significantly improved and he particularly noted the resolution of the financial crisis and the encouraging political climate following the October 1999 presidential elections.
**************************************
Economist named as new Polish finance minister
June 9

Poland's Deputy Finance Minister Jarolsaw Bauc has been confirmed as the replacement for his outgoing boss Leszek Balcerowicz. Bauc, a respected foreign-trained economist, has been acting finance minister since Balcerowicz announced he would quit two days before. The technocratic Bauc is an advocate of strict financial policies, but may lack the political clout to implement them. "The nomination of Jaroslaw Bauc is very good. He is a specialist in macroeconomics" said Boguslaw Grabowski, a member of the rate-setting Monetary Policy Council. "The Council knows him as proponent of restrictive fiscal policy. He is open to our calls for more transparency in fiscal policy," said Grabowski. Before Bauc's appointment was confirmed central bank chief Hanna Gronkiewicz-Waltz also praised the 42-year-old economist.
**************************************
Reserve Bank gives evidence against Hansie Cronje
June 13

Former South African cricket captain Hansie Cronje's lawyers paid about R300 000 to the South African Reserve Bank two months ago, a foreign exchange official of the institution told the King Commission in Cape Town, which is investigating claims that Cronje was being paid bribes to lose matches.

The deputy general manager of the Foreign Exchange department of the Reserve Bank, Charles van Staden, told the commission Cronje's lawyers had paid two amounts to the Reserve Bank's attorneys. He said these amounts of $10 000 and $37 360 were converted to rands and paid into a trust account. He said these amounts represented R63 482 and R239 215. Van Staden said he had requested an explanation two months ago from Cronje, as to the origin of these amounts but had not yet received a response. However, he said he had received an indication from Cronje's lawyers that $25 000 of the total related to a tour that did not take place.
**************************************
Central bank websites

The links page on Central Banking's website has been updated to include these new central bank websites: Armenia, Belgium, Botswana, Egypt, Hungary, Iceland, Korea, Macedonia, Paraguay, Ukraine, Nepal, United Arab Emirates, Albania

The Bank of Papua New Guinea's website is currently under construction, the central bank says, and will be ready soon.

http://www.centralbanking.co.uk/linksf.htm
**************************************
Quest for central bank independence

Michael King is conducting research on central bank independence at the London School of Economics. He is looking for information on central banks which have legislated changes in their independence since 1990. He is familiar with Sylvia's Maxfield's work "Gatekeepers of Growth" 1997 (Princeton Univ Press),which covers the period 1989-94. He wants to know if anyone is aware of similar efforts covering the entire decade. Can you help? Send emails to M.R.KING@LSE.AC.UK
**************************************
PAPER OF THE WEEK
**************************************
Optimal exchange rate policy: The case of Iceland

By Mar Gudmundsson, Thorarinn Pettursson and Arnor Sighvatsson Email chief economist: MAR.GUDMUNDSSON@SEDLABANKI.IS

The paper questions the rationale for the choice of the current regime of a currency peg for the Icelandic economy, concluding that Iceland fails to fulfill any of the conditions for being an optimal currency area with the euro area.

"The findings suggest that the structural characteristics of the economy all support a flexible exchange rate regime," the authors say. "The economy is not so open that the transaction costs of keeping independent currency are overwhelmingly large, nor is trade with the potential currency area large enough to warrant pegging the krona to the euro."

But the paper also says that joining the euro is not necessarily a bad idea. It also says that by joining the EU, trade patterns may change which would lead to Iceland fulfilling the OCA conditions. The paper concludes that a country's optimal exchange rate regime is not set in stone and that it is "time dependent".
**************************************
BOOK OF THE WEEK
**************************************
Financial Structure and Monetary Transmission in Europe
By Gabe J. de Bondt, Economist, De Nederlandsche Bank

Focusing on the years 1980-95 and providing empirical evidence for six European countries, the author discusses whether cross-country variations in financial structure have a systematic relationship with inter-country differences in the monetary transmission process. The author says that differences in financial structures across EMU countries may hamper the implementation of a common European monetary policy.
**************************************

8 June 2000

**************************************
NEWS THIS WEEK
**************************************
** Banqueting at the Banque
** Renewed calls for Sabirin to go
** Lars Svensson to do RBNZ review
** Hanna Gronkiewicz Waltz in hospital
** BOE on hold a day early
** Career central banker Hartmann retires
** Greece to join euro
** IMF reviews operations of Croatian National Bank
** Polish central bank says can meet inflation target
** Russia central banker forecasts FX reserves rise
** Kazakh central bank cuts rates
** Central Bank of Norway announces portfolio results
** Currency corner - Bank of Russia

**************************************
ANNUAL REPORTS
**************************************
** Bank for International Settlements **
** Bank of Japan
** The Central Bank of the Bahamas
** Riksbank
** Central Bank of Turkey

**************************************
PAPERS OF THE WEEK
**************************************
** Survey of electronic money
** EMU and Public Debt Management: One Money, One Debt?
** Get the Golembe report!
** And..Practical Issues Arising from the Euro
** Update on disclosure framework for settlement systems

**************************************
REGULATORY QUARTERLY ROUNDUP
**************************************
** Cruickshank report turns the screw
** Fed warned by European banks
** Forum releases blacklist
** ... and over predatory lending
** Opposition to capital asset cover
** Russia opens the banking door
** Commission anger on bank charges
** Austria ostracised over pass books
** From 54 to ten

**************************************
BOOKS THIS WEEK
**************************************
** Financial Stability of Central Banks
** Reserve Management

**************************************
HAPPY BIRTHDAY!!
**************************************

** Derick Latibeaudiere, governor of the Jamaican central bank, is 49 on June 9.

** Vicenzo Desario, director general of the Banca d'Italia, is 67 on June 11.

** Johannes Witteveen, former managing director of the IMF, was 79 on June 12.

** Former president of the New York Federal Reserve, Gerald Corrigan, is 59 on June 13.

** Satya Pal Talwar, deputy governor of the Reserve Bank of India, is 61 on June 14.

** Masayuki Matsushima, executive director at the Bank of Japan since 1998, is 55 on June 15.

** Teki Beyene Mebratha, governor of the Bank of Eritrea, is 59 on June 15.

**************************************
NEWS THIS WEEK - 8 JUNE 2000
**************************************

Banqueting at the Banque
May 27-May 28

The 200th anniversary of the Banque de France lived up to its billing as the highlight of the central bankers' diary this year. Every central bank in the world was represented, in most cases by the governor. Thus at the glittering concert of French music (Ravel, Berlioz and Bizet) given by the Ensemble Orchestral de Paris the evening before, Alan Greenspan was seated next to James Wolfensohn in the dress circle, just behind our urbane host, Jean-Claude Trichet, and members of the French Cabinet. All the members of the executive board of the ECB were on hand - they were seen having a drink together during the interval - as well as many of the grand old men of central banking, such as Helmut Schlesinger, former president of the Bundesbank.

Trichet welcomed delegates to the celebration in the name not only of his institution, but also of the ESCB, which that week celebrated its second birthday.

The central banking seminar the day after was devoted to a discussion of the key issues facing central bankers today, and especially the challenges of "responsibility" and "accountability". Unfortunately we cannot report details of the fascinating discussion - because the governor asked us to treat it as confidential. However, a special feature on the seminar will appear exclusively in the August issue of Central Banking.
**************************************
Renewed calls for Sabirin to go
June 7

Indonesian president Aburrahman Wahid has called on the head of its central bank to resign. The call comes as evidence mounts that Bank Indonesia governor Sjrahril Sabirin is implicated in a political and banking scandal. The case centres around the illegal transfer of funds last year from insolvent Bank Bali to a company closely linked to the ruling party at the time, the Golkar Party. Governor Sabirin - close to President Soeharto - has denied any wrongdoing and has repeatedly resisted calls from the government for his resignation. Under a law introduced last year, giving the central bank independence from the executive, only parliament, not the president, can sack the governor. The governor should be only forced to resign in the case of illness or proven corruption.
**************************************
Lars Svensson to do RBNZ review

The economist Lars Svensson has been appointed as the international expert in charge of the review of the Reserve Bank of New Zealand.
**************************************
Hanna Gronkiewicz Waltz in hospital
June 7

Hanna Gronkiewicz Waltz, governor of the National Bank of Poland, was in hospital this week.
**************************************
BOE on hold a day early
June 7

The Bank of England kept interest rates on hold at 6% yesterday for the fourth month in a row. The two-day MPC meeting took place a day earlier than usual (usually the decision is announced on Thursday) because of the general council meeting today, which Eddie George the governor had to attend.
**************************************
Career central banker Hartmann retires
June 15 (forthcoming)

Wendelin Hartmann, a member of the Directorate of the Bundesbank, retires on June 15. Hartmann, only 63 years old, has been a member of the Board since 1992. In total, he has worked for 36 years at the Bundesbank. In his time he has been chairman of computer experts of G10 central banks and chairman of the BIS committee on payments and settlement systems. Hartman will be replaced by Hans-Georg Fabritius, the vice president of the Landeszentralbank in Hesse.
**************************************
Greece to join euro
June 5

Greece has won endorsement from European finance ministers to become a full-fledged members of the single currency. The meeting was a crucial step for Greece, which now looks set to become the twelfth EU country to join the euro. Greece's membership was endorsed by the finance ministers, with final approval set for the Portugal summit later in June.
**************************************
IMF reviews operations of Croatian National Bank
June 1

An International Monetary Fund technical assistance mission, headed by Mr. Warren Coats, met last Thursday with the highest officials of the Croatian National Bank headed by the CNB Governor dr. Marko Skreb to review the program of the mission's activities during its six day stay in Croatia. According to the program, special attention was to be paid to the review of the regulation governing the operation of the central bank and commercial banks. Institutional relations between the central bank and the finance ministry and the interdependence between monetary policy, money market, public debt management and public finances were also examined.

In addition, the mission engaged in detailed analysis of the bank's international reserves management, changes in the payment system, all monetary policy instruments, including the domestic and foreign currency reserve requirement.
**************************************
Polish central bank says can meet inflation target
June 4

A top Polish central bank official said on Sunday at the annual meeting of the BIS in Basel that Poland could meet the bank's end-2000 inflation target of 5.4 to 6.8 percent, but would probably only reach the top of that range. There has been much speculation that the inflation target was set too much too low and that failure to meet it would damage the central banks credibility, a crucial element bringing down inflationary expectations used in pay settlements. Ryszard Kokoszczynski, deputy president of the National Bank of Poland, said it was "feasible" for Poland to achieve the Monetary Policy Council's ambitious target, but added: "Let's be frank about it, (it will be) close to the upper range. We don't think about being 5-plus we are rather thinking of being close to 6.8 (percent)."
**************************************
Central banker forecasts FX reserves rise
May 4

Russian Central Bank Chairman Viktor Gerashchenko said on Sunday that contrary to some recent reports he was not about to retire from the job. There had been some speculation that President Vladimir Putin wanted to replace him with Russia's representative at the World Bank, but that seems to have died down now. Gerashchenko also said that Russian foreign reserves could grow as much as $6 billion more this year to reach $25 billion. Boosted by high oil prices, reserves are already up $6 billion this year at around $19 billion.
**************************************
Kazakh central bank cuts rates
June 5

Kazakhstan's central bank cut its key refinancing interest rate on Monday and said it would likely fall further in coming months to make bank credits more accessible to industry. "It is quite possible that we shall again lower refinancing rates," central bank head Grigory Marchenko told reporters after addressing parliament in capital Astana. "Our main aim at present is to make borrowing cheaper for the real sector, to ensure that interest rates fall."

The central bank said earlier in a statement it had cut the refinancing rate to 14 percent annual from 16 percent after "taking into account inflation levels, falling treasury bond yields, the situation on financial markets...demand and supply of credits."
**************************************
Central Bank of Norway announces portfolio results
May 29

Norway's Petroleum Fund was worth NKr264.2bn (Dollars 29.5bn) as at March 31 following a NKr30bn infusion during the first quarter, the Central Bank announced.

The Fund yielded an overall return of 2.37% on the period. About 40% of the Fund is invested in equities and the remainder in bonds.

The Petroleum Fund is where the Norwegian state sets aside some of the runaway wealth being generated by the country's offshore oil and gas assets, for the future sustenance of an aging population when the wells have run dry. The transfers into the fund also have a relatively unknown facet. Thanks to its oil wealth, Norway is the only OECD nation currently having a negative national debt - ie assets exceeding liabilities.
**************************************
CURRENCY CORNER
**************************************
Bank of Russia immortalises military leaders

Follow the stir it caused by issuing a coin commemorating Joseph Stalin reign, the Bank of Russia have issued three new commemorative coins in the Outstanding Military leaders series, which honours General Alexandr Vasilyevitch Suvorov (1730-1800) author of strategic and military works: "The Regimental Founding", "The Science of Victory". He started the military service as a corporal in 1748, participated in the Seven Years' War (1756-1763), Russo-Turkish wars (1768-1774 and 1787-1791), headed Russian troops during the Italian and Swiss Campaigns (1799). He had not lost a single battle.
Please see http://www.lbmrc.co.uk
**************************************
ANNUAL REPORTS
**************************************
Annual report season continues in full fettle:

Bank for International Settlements
June 5

A sudden reversal in the US dollar could pose the greatest single upset to the world economy, the Bank for International Settlements (BIS) said. In its annual report released on Monday, it also warned that the boom in the economy tied to new technologies also has a negative side.

New technologies are enhancing productivity and reducing margins, but in some cases they also have eroded profitability. New technologies have reduced costs by lessening inventories, but meanwhile profits are being squeezed. Part of this is due to ""growing depreciation charges, reflecting the short duration of recent investment in equipment'', the BIS said. Such spending was ""increasingly being financed by firms taking on more debt'', it added.
**************************************
Bank of Japan in 1999

The Bank of Japan's 1999 annual report is now out. Covering the year up to March 1999 it details the bank's first full year of operational independence. Unusually, and commendably, the BOJ reveals its capital adequacy ratio for the year. Despite increases in reserves the bank's capital ratio fell in 1999 (by 0.29% to 9.85%). This is a level which would make many large commercial banks nervous and below the bank's target of 10 percent. http://www.boj.or.jp/
**************************************
The Central Bank of the Bahamas

The Bahamas annual report reveals a bullish assessment of Bahamas economy. Domestic inflation was subdued at 1.3% and the real economy robust: hotel occupancy up 13.5 % and arrivals on the island up 9%.
**************************************
Sweden's Riksbank

The Riksbank's report for 1999 also reveals how the bank has adapted to new legislation. Since the new Riksbank Act (which came into effect on 1 January 1999) monetary policy decisions are now the responsibility of a six member Executive board. The report reveals how they have had to adapt. Minutes of the monetary policy meetings (which happen ten times a year) are now published and board members must observe a familiar period of "purdah" in the period between decision and publication. Unlike the Bank of England, when speaking publicly the board has decided to present a united front regardless of individual options.
**************************************
Central Bank of Turkey

New annual report can be accessed at http://www.tcmb.gov.tr/frame/sub_yr_e.html
**************************************
PAPERS OF THE WEEK
**************************************
Survey of electronic money

The new "SURVEY OF ELECTRONIC MONEY DEVELOPMENTS" is available from the BIS website at http://www.bis.org/publ/cpss38.htm This report provides information on electronic money products that are in use or being planned in 68 countries or territories. The information relates to late 1999 or early 2000. The report also includes some information on the policy stance adopted by the various authorities concerned, including central banks.

A number of publications relating to electronic money have already been published under the auspices of the BIS. These include Security of Electronic Money (a joint publication by the CPSS and the Group of Computer Experts, August 1996), Implications for Central Banks of the Development of Electronic Money (BIS, October 1996) and Risk Management for Electronic Banking and Electronic Money Activities (Basel Committee on Banking Supervision, March 1998).
**************************************
Committee for Payments and Settlements

The following articles from members of the BIS's CPSS were recently published:

HELLER, "Intraday credit in the Swiss Interbank Clearing: A first experience", Payment Systems Worldwide, no.1, vol. 11 (2000)3-5;

Ryckebusch/Ducher/BEAU, "Operating characteristics of France's TBF and PNS High-Value Payment Systems: Lessons from modeling", Payment Systems Worldwide, No.1 vol. 11 (2000)20-29.

Please note that the conclusions set forth by the authors reflect their personal opinions and do not reflect an official position of the respective central bank, the CPSS or the BIS.
**************************************
EMU and Public Debt Management: One Money, One Debt?

This topical paper (published by the CEPR, http://www.cepr.org and co-authored by Carlo Favero, Alessandro Missale and Gustavo Piga) considers how the market for sovereign debt has developed now that the eurozone countries share a currency. The main implication is that eurozone's national debt managers now compete to attract funds from the international pool of euro liquidity. The report recommends that the debt managers need careful coordination of the timings of primary debt issues in order to avoid "bunching". Also, since the eurozone's smaller countries might find their debt squeezed by out by demand for the benchmark debt issued by big boys like France and Germany, they suggest syndicated loans might be a better option.
**************************************
Get the Golembe report!

Carter Golembe, author of the Golembe report and one of the most respected commentators on US banking regulation, has published a compilation of the report's recent highlights. "Key Banking Issues Entering the New Millennium" covers the long saga of US financial modernization legislation, the role of the central bank in regulation and supervision and includes extensive analysis of many other key public policy issues. For more information contact Carter H. Golembe (mailto:golembe@flinet.com, http://www.thegolembereport.com)
**************************************
Bank releases monetary statistics

To the delight of UK monetary-policy number crunchers the Bank of England has released Monetary and Financial Statistics, May 2000 (Vol.4.5). This voluminous collection of statistical gold is available in hard copy at a price (£155 a year outside Europe) and much cheaper electronically - see the banks site at http://www.bankofengland.co.uk/msfd
**************************************
And..Practical Issues Arising from the Euro

It was always a paradox that a central bank not participating in the single currency should publish one of the most respected commentaries on the progress of the euro. The Bank of England's euro-review is back in June 2000 for another (13th!) edition. As always the report will be devoured by the 36,000 subscribers. The publication schedule has now relaxed a little, after a breakneck series up to the launch of the new currency, the plan is now for a twice yearly outing. See for yourself: http://www.bankofengland.co.uk/euro/piq.htm
**************************************
Update on disclosure framework for settlement systems

In February 1997 the CPSS/BIS published the "Disclosure framework for securities settlement systems" that was elaborated together with IOSCO (http://www.bis.org/publ/cpss20.htm). Many securities settlement systems have in the meantime made information on their system's operation and its allocation of risks available to the general public (http://www.bis.org/publ/cpss20resp.htm).

The latest addition to the list of disclosures is a revised text from the National Bank of Belgium (April 2000), that incorporates the latest developments of the SSS managed by the NBB. It can be accessed directly by using the following link: http://www.bis.org/publ/cpss20r10.htm
**************************************
REGULATORY QUARTERLY ROUNDUP
**************************************
** March 2000 to May 2000 **

Cruickshank report turns the screw
June 7

The UK's Financial Services Authority has hired 20 people in the wake of the Don Cruickshank report to examine competition (or the lack of it!) in the UK banking industry. For an exclusive interview with Don Cruickshank, who is now the head of the London Stock Exchange negotiating the merger with Deustche Borse, please refer to the latest issue of the Financial Regulator journal, edited by Neil Courtis. Neil Courtis also reveals that the Basel committee has total of 200 people on all its working groups. For more details, and to order the journal, see: http://www.centralbanking.co.uk/frjf.htm
**************************************
Fed warned by European banks

The US Federal Reserve has been warned by the European Banking Federation (EBF) that new US financial services legislation discriminates against European banks and makes it difficult for them to operate in the US. The Gram-Leach-Bliley bill opens up the US banking sector by abolishing laws separating commercial banking, insurance and investment banking, but the EBF said that it would prevent European banks from taking advantage of the new opportunities "in the same timely way as US banks". The new legislation, which came into effect at the end of March, requires inter alia banks to apply for financial holding company status - a much more laborious process for foreign banks than for domestic US groups.
**************************************
Forum releases blacklist

In its most public action so far the Financial Stability Forum (FSF), which links G7 central banks, regulators and ministries of finance, released on 26 May its assessments of offshore financial centres' "perceived quality of supervision". These assessments form part of a report by the FSF's working group on offshore financial centres chaired by John Palmer, head of Canada's Office of the Superintendent of Financial Institutions. The results were compiled by the forum based on a survey of financial supervisors from 30 financial centres and 37 offshore financial centres. While at pains to argue that the rankings do not "constitute judgement about any jurisdiction's adherence to international standards", the rankings are viewed by offshore centres as a draft blacklist.

The forum proposes that the IMF should take the lead in assessing the quality of these jurisdictions and in implementing sanctions. The full text of the report is available on the FSF website at http://www.fsforum.org.
**************************************
We would value any views readers have about the work of the Financial Stability Forum. Please send all comments in strict confidence to bweller@centralbanking.co.uk or see Central Banking's website (http://www.centralbanking.co.uk/lists.htm) and put a message in the box on the Newsmakers subscription form. You do not need to leave your email address or contact details if you would like to remain anonymous.
**************************************
Financial Stability Forum rating of offshore centres

Group I
Hong Kong SAR, Luxembourg, Singapore, and Switzerland, Dublin (Ireland), Guernsey, Isle of Man and Jersey.

Group II
Andorra, Bahrain, Barbados, Bermuda, Gibraltar, Labuan (Malaysia), Macau SAR, Malta, and Monaco

Group III
Anguilla, Antigua and Barbuda, Aruba, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Lebanon, Liechtenstein, Marshall Islands, Mauritius, Nauru, Netherlands Antilles, Niue, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, Seychelles, The Bahamas, Turks and Caicos, and Vanuatu.
**************************************
... and over predatory lending

For its part, the Fed is trying to curb "predatory lending" by some mortgage and credit providers who target low income groups, according to Alan Greenspan, the chairman. Their high interest rates and aggressive debt collection methods constitute 'abusive' treatment of vulnerable parts of the population and he said that the central bank was trying to address the matter in various ways.
**************************************
Opposition to capital asset cover

A new rule proposed by the Fed to make banks set aside more capital to cover their investments in start-up companies was strongly opposed by the Office of the Comptroller of the Currency (OCC). The Fed's plan would mean that bank holding companies had to set aside capital equivalent to 50% of venture capital investment; they are currently required to hold 8 % capital against such assets. The OCC, an independent treasury arm overseeing most of the big US banks, is reported to view investment in venture capital as a form of financing which, if properly managed, holds no extra risks. The OCC resents what it feels is encroachment onto its territory by the Fed, following the passage last year of the GLB Act, which extended the Fed's supervisory powers.
**************************************
Russia opens the banking door

Russia has formally abolished the 12% limit on foreign capital in the banking sector, creating the possibility for western financial institutions to expand their Russian operations, although the move seems unlikely to attract foreign money into a lending market which is fraught with risks. The central bank said that the limit had 'effectively' been repealed four years ago, but few bankers have chosen to venture into the country's uncertain financial sector.
**************************************
Commission anger on bank charges

A survey undertaken by the European Commission revealed that European banks are failing to follow the dictates of a European directive on cross-border bank transfers in euro. The Commission's report, published on May 23, revealed that, on average a small cash transfer (100 euro) resulted in a bank charge of over 17 euro. In a quarter of cases the recipient of the cash was also charged, something which should be illegal according to the European directive on the subject. While the Commission has no power to prosecute the banks involved they are attempting to put pressure on national authorities to see that this is done. It is not sufficient for member states simply to "put the directive on the statute books", said consumer commissioner David Byne; "They have an obligation to ensure that the provisions are applied in practice."
**************************************
Austria ostracised over passbooks

The Financial Action Task Force (FATF) on money laundering is due to suspend Austria's membership of the organisation in June this year as a result of the failure to take action on anonymous "passbooks". The FATF wants a clear political commitment from the Austrian government that it will outlaw the passbook savings accounts which allow the account holders to remain anonymous, contrary to the FATF's recommendations. This move follows an ongoing FATF initiative to clamp down on offshore financial centres for their role in money laundering. Usually the FATF would be wary of picking a fight with a member of the EU, however Austria's current diplomatic isolation because of its far-right government makes it a softer target go before parliament.
**************************************
From 54 to ten

The new governor of Malaysia's central bank, Zeti Akhtar Aziz, announced on her appointment in March that she intended not only to pursue the plan of consolidating the country's 54 financial institutions into ten groups but to complete the reorganisation by September - three months earlier than originally scheduled. Analysts have expressed concern that the rapid pace of reorganisation will make bankers less willing to lend enough to support rapid economic recovery. Malaysia intends the newly consolidated financial sector to form a core of large, strong organisations able to withstand liberalisation.
**************************************
BOOKS OF THE WEEK
**************************************
Financial Stability of Central Banks

The Centre for Central Banking Studies at the Bank of England has just published a very interesting collection of papers on "Financial stability and central banks - Selected issues for financial safety nets and market discipline". It's the written output following one of our short term international central banking projects. Its free of charge and will be available on the CCBS website (part of the BoE website http://www.bankofengland.co.uk) from next week. A hard copy can be ordered by contacting CCBS
Tel: + 44 (0) 20 7601 3892
Email: CCBS@BANKOFENGLAND.CO.UK or JULIETTE.HEALEY@BANKOFENGLAND.CO.UK
**************************************
Reserve Management

By H.M. Scobie & G. Cagliesi, European Economic and Financial Centre
Email: EEFC@EEFC.COM

A very good book on this relatively under-researched subject. Divided into ten chapters including:
(1) A excellent chapter on understanding central bank balance sheets
(2) An examination of the composition of foreign exchange reserves
(3) Benchmarking practice
(4) Currency baskets and official reserve policies
(5) Arguments over the optimal levels of reserves
There is also a very useful appendix, which contains, in a fairly integrated and harmonised way, the balance sheets of 46 countries. Recommended.

Published by Risk Books. See website at http://www.riskbooks.com Or fax Risk Books on ++ 44 20 7484 9758

RETURN TO CENTRAL BANK INDEX

© 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

Disclaimer of Warranty

Central Banking Publications assumes no responsibility for errors or omissions in these materials.

THESE MATERIALS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

Central Banking Publications further does not warrant the accuracy or completeness of the information, text, graphics,links or other items contained within these materials. Central Banking Publications shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, lost revenues or lost profits, which may result from the use of these materials. The information on this server is subject to change without notice and does not represent a commitment on the part of Central Banking Publications in the future.

Centennial Precious Metals Gold coins & bullion since 1973 P.O. Box 460009 Denver, Colorado 80246-0009 We educate first-time investors!

We invite you to contact our trading desk for quotes and purchase information. 1-800-869-5115 00-800-8720-8720 6:00am to 6:00pm MtnTime; Mon-Fri admin@usagold.com

USAGOLD Rated A+