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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.
23 June 2003
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A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
******************************************
HOORAY FOR TRICHET!
So the Paris courts have once and for all cleared Banque de France governor Jean-Claude Trichet and his predecessor Jacques de Larosiere from the unfounded allegations that had been made about their role in the Credit Lyonnais affair more than 10 years ago. A rather sheepish Yves Bot, the public prosecutor, has had the decency to accept that there was no point in pursuing the case any further by lodging an appeal against the court's ruling: "Everything has been said -- we must move on now." With the dignity that he has shown throughout these awful proceedings, Trichet allowed himself to say, "I'm moved."
"I am very happy for the Bank of France. I am happy for Jacques de Larosière. I am happy for the Banking Commission. I am happy for Jean-Pascal Beaufret and my former collaborators at the Ministry of Finance", he stated.
Tediously, EU heads of state have put off the final approval of his elevation as Duisenberg's successor at the ECB until their next summit in October, but there can surely be no ridiculous haggling at this stage. Any repeat of the undignified political infighting that marked Duisenberg's appointment would strike another blow at the ECB's credibility. Duisenberg, who originally planned to retire in July, will valiantly carry on until the heads of state have made their decision.
There is some uncertainty about how long Trichet will serve for, but most expect him to be granted a four year term. But what will happen after that? Germany will certainly claim the position for one of its nationals, now that President Chirac has made such a stand on the issue of nationality. But Otmar Issing, currently in the middle of an eight-year term on the Governing Board, is already 64, four years older than Trichet, and there is a lack of other suitably qualified German candidates.
Newsmakers hears that the favourite to succeed Trichet as governor of the Banque de France is Christian Noyer, who made a very good impression as the soft-spoken vice-president of the ECB for a four year term from 1998 to 2002, being succeeded by the equally competent Lucas Papademos, who is serving eight years.
[Post-Publication UPDATE:
Trichet "must serve eight years"]
An eagle-eyed reader has called to say that our story in today's
Newsmakers about Trichet possibly being appointed to the ECB presidency
for only four years does not fit with the legal position. Appointments
to the executive board of the ECB are for non-renewable eight-year
terms, except for the first appointments, which were staggered
to allow for an orderly rotation when their terms expired. Political
meddling cannot be allowed to interfere with this; the appointment
of Duisenberg was also for eight years, and the backroom deal
brokered by UK Prime Minister Tony Blair in May 1998 whereby Duisenberg
indicated that he might voluntarily step aside after four years,
to give way to Jean-Claude Trichet cannot be repeated. Talk of
a "split" term (four years for Duisenberg and four for
Trichet) in 1998 was misleading, on this view, Trichet must serve
his full eight years. No more political meddling, please!
IRAQI GOVERNOR FACES THE MOB
A central banker's lot doesn't really get much less appealing than that of Faleh Salman, the man now shouldered with the responsibility of running Iraq's sickly central bank. To avert total meltdown of what little remains of the Iraqi financial system, Salman has been forced to take to the streets in an attempt to reassure the crowds besieging the makeshift central bank (the original building has been reduced to rubble) that their money is actually worth what it says it is worth.
Dubious notes would be replaced for their full value just as soon as they had printed and distributed acceptable new notes, he told them. But to the acute embarrassment of the Americans in charge, he has had to print millions (he would not reveal exactly how many: "It is my secret") of new 250-dinar notes, which bear Saddam's almost cheekily smiling countenance -- despite the American injunction that all such graven images be obliterated. Salman told Reuters, "It was not possible to change the banknotes for the time being. There is no national authority in Iraq at the moment to change the design of the banknotes."
Irate Iraqis were demanding that their 10,000 dinar notes (which many received as pay from the British and American forces) be replaced as they fear that these notes, printed by Saddam in his twilight months, will be declared worthless because too many were looted after the war, and they are also too easily counterfeited. Salman lays the blame on self-interested scaremongers: "People are trying to make a profit by saying the notes will become worthless, then buying them for less than face value." Moneychangers are buying them for 70% of face value.
According to Reuters, some Iraqis have been hoarding the so-called "Swiss dinar", pre-1991 currency that does not carry Saddam's face, believing it will be revived. The old and tattered notes are still in use in the north of the country, where Kurds ran an autonomous enclave after the 1991 Gulf War. The "Swiss dinars", which got their name because they were printed in Europe and are considered harder to counterfeit, are worth far more than the Saddam dinars. They reached a high of 3.8 to the dollar this month, while it takes more than 1,000 Saddam dinars to buy a dollar.
Salman, who joined the bank 40 years ago, has the task of resurrecting the Iraqi economy from the crudest offices imaginable, with little more than a few telephones to help kick start the basically non-existent banking system.
Then there is Iraq's walloping external debt. Salman says, "We have our own figures, but we must sit with our creditors to come to an understanding... We are ready to talk." What they do have however are their reserves, says Salman: "I will not give you precise figures. There are millions in foreign currency in our vaults and we have recovered all our gold reserves, it is all there." As for the $1bn supposedly lifted from the bank by Saddam's son, Salman says, "Ask the Americans about that."
If good news seems a little thin on the ground for Iraq's central bankers, then at least take heart that following the draining of the flooded central bank vaults, the famed Treasure of Nimrud, a priceless hoard of gold jewellery and ornaments from the ancient kingdom of Assyria, have been recovered intact. According to Salman, "They were never lost. We knew all along that they were there. It just took a bit of time to get at them because of the flooding."
THE EDDIE AND GORDON SHOW
Praise was liberally showered on Sir Edward George at his City swansong, the annual Lord Mayor's banquet for the square mile's great and good -- Eddie's 27th in a row. Gordon Brown, Chancellor of the Exchequer, praised his integrity, steadfastness and exemplary leadership during his service of 41 years, which culminated as the first governor of the newly independent central bank. Eddie was a man whose "dedication and integrity gives public service a good name."
The outgoing governor reciprocated by thanking the chancellor for his first, and "inspired", decision to give the Bank independence, a decision that had "served us well". Over the last ten years inflation has been on target at 2.5% and growth has been above trend at a quarterly average of 2.9% -- in both respects a remarkable improvement on Britain's previous dismal performance. But he also paid tribute to Sir Kenneth Clarke, the Conservative chancellor who had picked up the pieces after the debacle of Black Wednesday in 1992 and was the first to give the Bank an inflation target and thus set the stage for it to achieve operational independence in 1997.
It was no surprise that Eddie should back the government's "no" to the euro for now, saying, "I agree with your assessment that the economic case for euro-entry has not yet been made."
Eddie's runaway success at the Bank was however tinged with the faintest of regrets. The Bank's exemplary inflation-targeting performance meant he had not been required to write an open letter to the chancellor explaining why he had not met the target. He decided to take the opportunity to practice the lost art of letter-writing, just for fun, and Newsmakers has got hold of it. It reads:
Dear Gordon,
Thank you.
Warmest regards,
Eddie
Visit here to see Gordon's most recent letter to Eddie -- all very matey: http://www.bankofengland.co.uk/mpc/chancellorletter030609.pdf
BALCEROWICZ SURVIVES
Embattled central bankers in Poland triumphed after a skirmish with finance minister Kolodko, who has now resigned after failing to sandbag the central bank into shelling out a further 5bn zlotys (having already parted with 9bn zlotys) from its revaluation reserve to line the 2004 budget. The central bank's governor, Leszek Balcerowicz, refused to buckle under pressure, arguing that it would be unconstitutional. Dariusz Rosati, member of the Monetary Policy Council, remarked, "If the future of public finances were to be built through a one-time printing of money, then I see its future in dark colours." Unusually, the central bank won the support of the prime minister, leaving Kolodko outmanoeuvred.
Kolodko's replacement, Andrzej Raczko, seems a touch more in tune with current thinking on central bank independence: "as an economist I am well aware that this is a very important basis for the market economy." But he also spoke of the need for "a very tough dialogue with the central bank" to help pave the way for entry into the Eurosystem. The central bank may have to brace itself for a few more trials yet before it reaches the promised land of the euro.
PHANTOM RESIGNATION IN NIGERIA
Nigeria's central bank became the object of a bit of jiggery pokery recently when local media wrongly reported that the governor, Joseph Sanusi, had resigned. Newsmakers went to investigate, but could not locate the sources that had originated these "wicked and mischievous rumours". We learn that, short of going insane, there are few reasons stipulated in bank law as to why a governor would have to leave the bank before the end of his term. A spokesman says: "The story is an embarrassment, to say the least. Everything in the story is false except the C.V. of the governor. We have been receiving scores of phone calls not only from within Nigeria but from abroad on this matter. We are aware of people jostling for the position but when journalists allow themselves to be used to publish absolute falsehood for whatever reason, then we have to be very careful. It is a disgrace to the profession." The central bank has no idea where they got the idea, but told Newsmakers, "We surely do know that the governor is still very alert and intelligent in the pursuit of his vision and mission for a first class central bank."
LAMBERT GRILLED
Richard Lambert was given a run for his money before Britain's Treasury Select Committee when prodded and poked over what on earth he was doing on the Bank of England's MPC (monetary policy committee) without an economics degree to his name. Lambert proceeded to describe how he was appointed. He had received two long-distance phone calls while in Japan from Ed Balls, Gordon Brown's chief economic adviser, and Gus O'Donnell, permanent secretary to the Treasury. This seems to have been about the extent of the interview process. Was this sufficient due diligence? Was this best practice in making top appointments to the monetary policy committee? Or is the Old Boy Network still alive and kicking?
Of course it is. But anyone surprised at how informal this seems may need to be told that in 1990 Lambert, then editor of the FT, had hired Balls to work for him as a leader writer -- although Lambert hastened to add that they are not "social buddies". If Lambert lacks economic expertise, he is certainly capable of spotting it early in the form of Ed Balls, who was hired a good four years before he went to work for Gordon Brown and was a key figure in the crucial decision to grant independence to the Bank in 1997 -- quite a piece of foresight. The Bank's two-year time horizon shouldn't be too much trouble at all.
CROCKETT HONOURED
Andrew Crockett always did have one of those names that look as if it is just waiting to have a "sir" in front of it. Now the space has been duly filled as the former central banker and general manager of the BIS received a knighthood from the Queen of England. Newsmakers regards the suggestion that this is a consolation prize for not getting the top slot at Bank of England as unseemly. Mervyn King was always the front-runner for that, as he was the "chief engineer" of the successful new monetary policy regime -- and more popular with the Treasury mandarins. But the title will lend lustre to the institution that Sir Andrew elects to lead next. The betting is that he will follow people like fellow economist Stanley Fischer into a top job in the private sector. When will he tell us who it will be?
A GAGGLE OF GOVERNORS
This week there will be an impressive gathering of central bankers in London, to attend the Bank of England's annual symposium and send Eddie George happily riding off into the sunset (his last day as governor is June 27). A gaggle of governors will also attend a more public forum to discuss of some key topical issues in central banking, about which more here: http://www.cbcglobelink.com/cbcglobelink/events/Bfss03/CBC_Bfss03.pdf
Neil Courtis, editor of Central Banking's very own Financial Regulator journal, will be moderating a session on Basel 11. Newsmakers will be sure to report if anything untoward occurs.
FEMALE DEPUTY FOR THE RBI
In a peculiar case of slighted honour, an executive director at the Reserve Bank of India resigned when the central bank followed in the Bank of England's footsteps by appointing its first female deputy governor last week. K.L. Khetarpal apparently refused to report to his former equal, K.J. Udeshi, and resigned hours after her elevation to governor status. He would not to explain his resignation, saying, "I have nothing to comment... I don't want to say anything against the institution after serving for so many years."
In India it seems to be widely assumed that he could not stomach having to take orders from someone who was technically three months his junior. But it is thought that he did not always to see eye to eye with the governor, Dr Bimal Jalan.
Born in 1943, Mrs Udeshi is a post graduate in economics, joining the Reserve Bank in 1965. She rose from the ranks and was appointed as executive director in 2001. She has had a long stint in exchange control and the Reserve Bank's internal administration and human resources departments.
Newsmakers points out that the RBI seems to be one of the more progressive central banks when it comes to making senior female appointments. Mrs Usha Thorat, who is well known internationally for her work as head of reserves management, has recently been promoted executive director responsible for internal debt management and other matters.
REDDY FOR THE TOP?
Incidentally, there is a rumour
going around that the governor himself is considering quitting
in order to become a member of India's parliament (he first became
governor in 1997 after a career largely in the finance ministry
and was re-appointed for a term of only two years from November
2002). This rumour has not been substantiated, but speculation
is already rife as to who will follow him, with many conjecturing
that former deputy governor and monetary policy expert Y.V. Reddy
(currently the IMF's executive director for Bangladesh, Sri Lanka,
Bhutan, India and Sri Lanka) might take his place.
9 June 2003
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By Benedict Mander
Central Banking Publications
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GOLD MARKET LOOKS FOR A LEAD
Will the central bank agreement of 1999 -- comprising all the big European gold holders -- be renewed when it expires in September 2004? Opinions differ on whether it should be renewed: gold producers and gold investors are for it, as it has reduced fear of huge central bank sales, but bullion banks and traders are generally against it. Real market folk don't care what happens to the price so long as they can play with the gold.
But who is going to push for renewal from within the central banking community? The lead has to be taken at governor level -- and nobody seems desperately anxious to pick up such a hot potato.
Last time, the issue was raised by Jean-Claude Trichet and Hans Tietmeyer, who told the other governors in 1999 that something had to be done at a time when the price was sinking and the market simply did not believe the central banks' reassurances that they would sell "only a little bit" of gold. The last straw was UK Chancellor Gordon Brown's decision to sell half UK's gold stock. The agreement itself was actually cobbled together largely by Andrew Crockett, then general manager of the BIS.
But who is going to take the baton this time? Tietmeyer has retired, and his successor at the Bundesbank, Ernst Welteke, has got his wires crossed with his own Finance Ministry over his proposal last year that Germany should sell some of its gold under a new agreement (a proposal he later half-retracted). Meanwhile, Malcolm Knight, Crockett's successor at the BIS, is busy being briefed by his staff on all the other aspects of his job. Somehow, one feels he is unlikely to give gold much thought.
So perhaps it will be up to Trichet again, assuming he is cleared by the court in June, and takes his due place in Frankfurt. Gold holders will be hoping he makes it.
IRAQ SHADOW OVER THE BIS?
Some European central bankers are said to be unhappy with the recent appointment of Roger Ferguson as head of the Financial Stability Forum. It is not that Ferguson is thought to lack qualifications for the job -- quite the contrary, there is much respect for his legal prowess. If few remember now his smooth chairmanship of the G10s Y2K taskforce, it underlines what a good job he did. Y2K preparations and rehearsals turned out to be crucial during the 9/11 terrorist attacks, and it was again Ferguson whose terse statement that the Fed's discount window was "open and operating" helped calm markets.
But the appointment has refuelled concerns of excessive American influence inside the BIS. Do some "old" Europeans still feel instinctively that it should still be the cosy European club that it was for the first fifty years of its existence? Or is frustration about the Iraq conflict casting a shadow even over central bankers' get-togethers?
Three of the five top people on the BIS staff are from North America, though only one is from the US. Malcolm Knight, general manager, and William White, chief economists, are both from Canada (which opposed US policy on Iraq) and only Bob Sleeper, head of the banking department, is from the United States. That leaves Andre Icard, deputy general manager (from the Banque de France) and the Swiss-German Mario Giovanoli as the only Europeans.
SHIFT AT THE FSF
But so far as the FSF goes, there is more to the criticism than sheer old European bloody-mindedness. The appointment does signal a shift. The FSF was conceived by Hans Tietmeyer as a way of making sure finance ministers, regulators and central bankers kept up a running dialogue about threats to the financial system. Crockett, who has stepped down as BIS general manager, was not only a much-praised chairman, but also a neutral one.
Ferguson, as a national central banker, cannot be above the fray to the same extent. Transatlantic divisions over Iraq have clearly strained the G8 meetings. Can the more collegial atmosphere of this central banker's club survive?
As an American, Ferguson will have to exercise that bit more diplomacy when setting the group's agenda. Not least when dealing with topics like combating terrorist financing which already figures prominently on the group's "to do" list.
[Randy's note: most things considered, it occurs to me that, given the domain of the FSF, if this "cosy European club" wanted to ensure that America received a particular message loud and clear, they would want to ensure that the "boy" whose job it was to carry the water (back to America) had enough clout to ensure he was listened to and taken seriously when he got there with his pail. I ask you, what better way to bolster his resumé than to select him, specifically, as the very head of that "cosy" group?]
BASEL BUNKUM
No one understands the new Basel accord. Grown men are reduced to tears when they try. There are simply too many details for any one person to digest. But it is troubling indeed to learn that people don't even seem to understand how it was arrived at in the first place. Top US regulator Jerry Hawke, who is Comptroller of the Currency, recently gasped: "I have been sitting on the Basel Committee for four years, and I still do not understand how decisions are made." One assumes he is an intelligent man and would be able to understand this if it were possible. As it seems not to be, it is not impertinent to ask: why isn't it?
TRICHET BRINGS SDRM DOWN TO EARTH
The IMF's much-vaunted Sovereign Debt Restructuring Mechanism is the latest casualty in a string of apparently wasted efforts in attempting to find some way to save the world from the terrors of sovereign default. But a few months ago Banque de France governor Jean-Claude Trichet came up with a more practical solution. The Banque de France proposed a "Code of Good Conduct" for sovereign debt restructuring, which avoids making pie-in-the-sky assumptions that blanket laws across the world would be easy to introduce. The BdF's code seems to make more sense than most suggestions so far.
Certainly, sentiments in emerging markets are favourable towards the French proposal. Chief economist of the Brazilian central bank Ilan Goldfajn expressed optimism to Newsmakers over the new plans, cautioning that forcing creditors into things is no way to go about business. Moreover, following the a recent meeting in Berlin this week, the BdF initiative is now being taken forward by Jacques de Larosiere, an old comrade-in-arms of Trichet's.
DUISENBERG SOLDIERS ON
No central bank takes kindly to politicians tampering with their business, and the ECB is no exception. In advance of its long-awaited rate cut this week, the ECB was told by Belgian finance minister Didier Reynders to be more active: "It is about time for the ECB to do something." If ECB board members read the newspapers, and Newsmakers expects it does, they hardly need Reynders (who has been rumoured to have designs on Duisenberg's job himself, but stands no chance) to tell them this.
The IMF has got in on the act, saying that "we see considerable scope for monetary easing". Wow, what an insight! Perhaps the ECB took this into account when it cut rates, but the ECB obviously doesn't follow IMF recommendations chapter and verse. Duisenberg said that in their forecasts "we are slightly less pessimistic apparently than the IMF". Furthermore, he admitted to being "almost astonished" at the IMF's decision to publish a paper on inflation differentials and deflation in the euro area. He derisively continued: "I have never seen the IMF publish a paper on inflation differentials between California and New Hampshire or between Texas and Ohio... if I may quote myself, I said, 'within a monetary union...deflation is not a meaningful concept when applied to individual regions', like New Hampshire or Germany."
But he remains tight-lipped on how long he will have to put up with their kind, or field questions from tiresome reporters: "I beg you to believe me that I have no idea how long I will be here." He was however happy to put a last-ditch good word in for those despairing pro-euro lobbyists in the UK, explaining that he thought "it would be advantageous for the development of the United Kingdom and for the euro area if we joined forces again." Take heart, British europhiles.
TSUMBA DUCKS OUT AFTER CASH CRISIS IN ZIMBABWE
Central banking in Zimbabwe doesn't seem to be too much fun at the moment. In fact, it's apparently so unbearable that the governor, Leonard Tsumba, who has managed to stick out almost ten years in the job, has now decided he simply can't last the course: he is "on leave pending retirement at the end of his term of office" at the end of July. In other words, he has ducked out -- but what prompted him to crack?
The central bank has been under fire recently because the country has been suffering from a disastrous shortage of banknotes, presumably because of the runaway inflation (currently speeding at an annual rate of 269%) that President Mugabe's cranky economic policies are causing -- he himself attributes Zimbabwe's economic woes to a "Western plot" to topple his regime. Nevertheless, the country is awash with queues of frustrated locals outside banks who aren't able to access cash as withdrawals have had to be strictly limited.
The government has been cajoling the central bank to be more flexible in its response to inflation, and to intensify efforts to make notes available for use "in cash transactions that have grown in size and in volume". Tsumba had this week been exhorting the public not to panic, assuring them that extra printing paper had arrived in Harare and that it would be used immediately. The firm that prints Zimbabwe's banknotes has been firing on all cylinders to ease the cash shortage; Tsumba also announced that a new 1,000 Zimbabwe dollar note was on its way in November.
But perhaps the stress was all too much. Deputy governor Charles Chikaura is now in charge, although a local paper said the government would now be looking at ways of ensuring that the central bank "plays a development role and not the monetarist role it has performed under... Dr Tsumba". Quite what that means, Newsmakers will leave to readers to interpret.
MORE DYNAMIC BOJ SEES OFF MEDIA CRITICS
Senior BOJ staff professes themselves pleased with the public relations impact of the more active communications strategy followed since Toshihiko Fukui took over from Hayami-san as governor in March. "Even Yomiuri Shimbun has stopped criticizing us", they say. Fukui's immediate action in calling a meeting of the monetary policy board only a few days after coming to office was followed up by TV coverage of a dinner attended by the Governor where he took part in a live debate on Public TV. This was the first time in the history of the Bank of Japan that a governor has been so bold as to appear live on TV in an open forum for a panel discussion.
There is even a feeling that the central bank's view on the futility of setting an inflation target for Japan is getting across. The simple reason for their strongly-held view is that there is no credible instrument to attain the target. There has to be a link between monetary policy and the target, but this doesn't exist, they say. "The monetary base, which is all we can control, has risen by 50% over the past two years; prices have declined. The increased supply has simply been absorbed by increased demand for reserves. This is because reserves cost the banks nothing."
There is only one influential newspaper that causes them furrowed brows and deep sighs: "Why is the Financial Times so violent in its attacks on us?" they ask plaintively.
NEW CHINA GOVERNOR STARTS WELL
Elsewhere in Asia, the new governor of the People's Bank of China has also got off to a good start. Dr Zhou, who took over at the beginning of the year, is said to be quite different from his predecessor Dai Xianglong. Zhou speaks English well, can hold his own in any economic discussion, and has bags of practical experience both in the private and public sectors. He presides over a currency that is assuming a growing regional role, despite the maintenance of exchange controls, and is pegged to the US dollar at an exchange rate that probably undervalues the renminbi by at least 30%. The currency already circulates outside China, with holders confident it will keep its value. The central bank participates in the Asean-based network of inter-central bank swap arrangements, set up to limit speculative movements of funds at times of crisis. Although it is unlikely ever to be activated for China's benefit -- China has the world's second largest currency reserves at $300 billion -- central bankers see this as symbolically important. "Agreeing to this credit gives us a right to know what is going on in China and to ask questions," says one.
ECB TO BE COURT OUT?
The question of whether the European Central Bank counts as an "institution" of the EU, or rather a "supranational organisation" might seem, at first, to be one best left to constitutional lawyers with plenty of time on their hands. Newsmakers was therefore surprised to find an audience of hundreds, including the pick of Europe's monetary lawyers (from the ECB, BIS and Banque de France) sweltering in Amsterdam University's main Hall on Wednesday 4 June to hear the answer.
The occasion was the inaugural lecture of Amsterdam University's new professor of economic and monetary union, Dr René Smits (formerly the top lawyer at the Netherlands central bank, and now legal head of the Dutch competition authority). According to Smits, who braved the June heat in heavy academic robes more suited to a chilly February, nuanced decisions about the ECB's constitutional position have serious implications.
For instance, does the ECB's
independent position prevent dawn raids by the EU's independent
fraud-busters (who can interview employees and seize computers
at will)? The ECB says yes, and is fighting in the European Court
of Justice to keep them out. Summing up Smits argued: "The
ECB's reticence in making clear whether it considers itself bound
by rules on competition, state aid, the unity of the internal
market, and public procurement, as well as its self-regulation
in the area of accounting rules, may undermine its justified independent
position as the EU's monetary authority rather than sustain it."
For the full lecture, and Smits, recommendations on how the European
Convention might resolve the issue, visit the Amsterdam University
website here:
http://www.uva.nl/actueel/object.cfm/object.cfm?objectid=0FF515E0-A67E-4009-BDABB551BA7921BE
WORLD BANK GETS SLAP ON THE WRISTS
Newsmakers is all in favour of a bit of institutional navel-gazing, not least in the large supranational organisations. This seems to be called for at the World Bank, which took a bit of a beating recently when an independent Princeton survey discovered that its organisational culture was considered to leave much to be desired. Its "slow and inefficient" bureaucracy and "perceived arrogance" was widely criticised; the survey also witheringly noted that it "is seen as doing a barely average job in helping developing countries reduce corruption." James Wolfensohn showed appropriate contrition, remarking that "we need to work harder" in certain areas of work. He admitted, "We take these results seriously and we aim to be transparent in sharing them widely with our staff and partners, and use them to improve the way we fight poverty."
ARE CENTRAL BANKS OVERRATED?
Currency board enthusiast Kurt Schuler (senior economist of the Joint Economic Committee of US Congress) thinks central banks are overrated. Rashly or not, Schuler made a bet for $1,000 in 2001 (read the small print here: http://users.erols.com/kurrency/bet.htm) that a selection of currency boards would outperform central banks in countries with analogous economic situations, boldly stating: "I am willing to put my money where my mouth is about the superiority of currency boards compared to central banks." His team comprises Argentina, Bosnia, Bulgaria, Estonia, Hong Kong and Lithuania, while the challenger's (Wilhelm Salater, an economist at the National Bank of Romania) comprises Chile, Czech Republic, Hungary, Latvia, Singapore and Slovenia. A half time assessment might conclude that the central bank team has the upper hand -- of course he wasn't to know that Argentina would come such a cropper. He admitted to Newsmakers that "Argentina's poor performance pretty much determines the result so far." One way he thinks that his team might be kept in the running would be for Argentina to dollarise: "Argentina's abandonment of the convertibility system in January 2002 could sink the 'currency board' side if it doesn't dollarise and recover." Wishful thinking possibly, but there is hope yet!
Newsmakers readers may be also be impressed by -- and may even be able to contribute to -- a monumental project that Schuler has undertaken, which is to compile a monetary history of the entire world. So far he has made striking inroads into Africa with a series of tables summarising features of the modern (ie, "since about the time paper money began to be used") monetary history of all African countries. See his website: www.dollarization.org
QUOTE OF THE WEEK
Allan Meltzer says: "If Alan Greenspan said the grass is pink, Wall Street economists would see pink grass. I like Alan Greenspan, but they all speak as if he's the Oracle of Delphi."
© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.
Benedict
Mander
Email: bmander@centralbanking.co.uk
Central Banking Publications Ltd
6 Langley Street, London WC2H 9JA, UK
Tel: +44 (0)20 7836 3625
Fax: +44 (0)20 7836 3608
http://www.centralbanking.co.uk
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