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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.
29 March 2004
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A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
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COMIC CURRENCY BATTLES
The Japanese sense of humour never fails to surprise. While comic books in other parts stick to slapstick or classroom antics, in Japan comic-book fiction is becoming intertwined with financial diplomacy - of sorts.
Politicians have traditionally been susceptible to cynical one-liners in smug cartoons, but "Golgo 13" takes this to an entirely new level. Officials in Washington, one of whom bears more than a passing resemblance to Condoleezza Rice, make an appearance a recent issue of the comic strip - as orchestrating a sinister plot to rescue the US dollar at Japan's expense.
The conventional rationale for the vast sum that has recently been spent by the Japanese on US dollars is that authorities fear a soaring yen hitting Japanese industry. Not so, according to Golgo 13. This spree is part of a White House conspiracy to force Tokyo to finance massive US budget deficits without making US Treasuries crash.
Rather far-fetched? But it is selling well, even provoking a giggle from the Japanese finance minister, Sadakazu Tanigaki, who called it "an entertaining story".
"THINK BEFORE YOU BORROW, SAYS BORING BANKER"
The furore over consumer debt looks set to continue if a recent exchange between the government and the Bank of England is anything to go by.
A day after Sir Andrew Large, a deputy governor at the Bank, cautioned bleakly that should interest rates rise as high as the market has predicted, consumers may struggle to service their debts, Gordon Brown, the chancellor, retorted: "It is not true that the economy is in a parlous position."
As Large called the debt burden a "credible threat" and even Eddie George, former governor of the Bank added his voice to the fray to say he was "concerned" by the situation, the government replied with a barrage of statistics. Brown pointed out that typical debt service repayments are about 7% of disposable income, compared with 15% in the late 1980s. Mortgage payments make up 15% of income now compared with 30% then.
However, comparisons with the late 1980s may not necessarily work in the government's favour. Mervyn King, the governor, has told the Treasury select committee that the rising debt-to-income ratios could soon reach the levels of the early 1990s when they were blamed for helping provoke the subsequent recession and house-price crash. King warned that history may repeat itself if interest rates rise and debt levels stay the same in the next few years. Considering King's strong suggestion that interest rates will rise in line with the market expectation, that reads as a fairly grim prediction.
But the committee was not entirely humourless. King unveiled a surprising new talent when asked by an MP to give a newspaper headline that would summarise the approach that should be taken to consumer debt. His self-deprecating reply was: "Think before you borrow, says boring banker."
POLAND'S STATISTICAL NIGHTMARE
After the Eurostat ruling that obligatory contributions to pension funds operating outside state-run security institutions cannot be included as part of public finances, the Polish entry date into the eurozone has been thrown into doubt. The Eurostat decision means that Poland's official budget deficit will swell by 1.5 percentage points of GDP, making it that much harder to reach the debt threshold for euro-entry.
Leszek Balcerowicz, president of the National Bank of Poland, did not rule out a delay to euro-entry in his non-committal reply to questioning on the matter, saying: "It would not be possible to deny (a delayed entry) in response to such a speculative question."
The government plans to join the eurozone in 2009 and the Monetary Policy Council of the national bank is urging adoption of the euro as early as possible. But first the new EU members like Poland still have to prove their convergence credentials by joining ERM2 - though the ECB is coming in for a lot of criticism for insisting they go through all these hoops that were designed for the original members all those years ago and, many say, are no longer appropriate.
Though uncomfortable when they bite, the rules of the stability and growth pact do give accession-country central bankers new ammunition to aim at governments and finance ministers who refuse to put public finances in order.
BERLUSCONI TALKS LIRA
Silvio Berlusconi has never shied from speaking his mind. Despite diplomatic denials that he is a "eurosceptic," the Italian prime minister cannot hide his displeasure regarding the euro, the adoption of which he pointedly remarked last December, "was not something decided upon by this government".
In his latest euro-snub, Berlusconi has obstinately continued to talk about lira on official campaign posters for this year's EU elections. "Not very European, to tell the truth," commented La Repubblica, a centre-left Italian daily, about the campaign posters that boast the launch of a L93,000bn (¤48bn) public works programme.
La Repubblica further notes that even in his six-month term as EU president, Berlusconi, never renowned for his tact, often spoke in terms of the lira over the legal tender.
MORE EURO-WRANGLING
The euro is not the only thing Berlusconi is keeping quiet about. He has announced that he has an "exceptional" candidate to head to the IMF, but refused to give a name. With Rodrido Rato and Jean Lemierre both seen as strong contenders, Berlusconi may have to identify his anonymous contender soon for the rest of Europe to appreciate these exceptional qualities.
Meanwhile Joaqún Almunia will take over as the EU's economics and monetary affairs commissioner from Pedro Solbes, who is returning to Spain to take up his new post as finance minister. Almunia will hold the role until November, when the new European Commission will be installed.
Solbes, however, may not find his future colleagues the most amicable. He recently joined the gang at a dinner in the finance ministers' Ecofin club. Among fellow diners were Francis Mer of France and Hans Eichel of Germany, with whom Solbes clashed when ardently pursuing the stability pact budget deficit rules during his time in the commission.
"EURA" ZONE - EURASIAN GOVERNORS OPTIMISTIC ON CURRENCY UNION
The euro is not the only currency set to go forth and multiply in coming years; the Russian rouble also looks set for wider circulation. Both the chairmen of the Central Bank of Russia, Sergey Ignatyev, and the National Bank of Belarus, Petr Prokopovich, were upbeat on the prospect of the adoption of the rouble in Belarus at a meeting of the Eurasian Economic Community council of central bankers held in Minsk. The rouble is set to become legal tender in Belarus on January 1 2005.
Ignatyev told journalists: "There are no serious problems left between the banks. We are prepared. There exist certain problems at government level. They primarily relate to the budget. I hope that this process will be completed in the coming weeks."
RBNZ BOMB SCARE CAUSED BY ALARM
The Reserve Bank of New Zealand has not escaped rising worldwide terrorist fears. The whole building was evacuated after a ticking parcel was found on the 10th floor, the home of the Ministry of Research, Science and Technology.
The entire building was emptied as the army bomb-squad hot-footed it to Wellington. Occupiers of neighbouring buildings were asked to move back from the windows as cordoning-tape was brought out.
On this occasion, fortunately, the precautions were unnecessary. The parcel contained an alarm clock destined as a gift to a minister.
WORLD BANK PRESIDENT GETS A SPLATTERING
James Wolfensohn, president of the World Bank, received a rather messy welcome to Slovenia while in the captial promoting the launch of a book on the country by the World Bank. Wolfensohn and Dusan Mramor, Slovenian finance minister, were on their way to a presentation when ambushed by group of around ten anti-globalisation demonstrators who pelted them with green paint.
After some delay, Wolfensohn arrived at Slovenia's main cultural centre with a definite tinge of green in his white hair, accompanied by Slovenian prime minister Anton Rop.
Fortunately Rop saw the incident as evidence of his country's thriving democracy, saying: "Such things can happen. This is proof that we are in a democracy; we have anti-globalists as well."
NEW HOME FOR BANK OF MAURITIUS
The Bank of Mauritius is following hot on the heels of the ECB in commissioning the construction of a new headquarters in the capital, Port Louis.
The new building will not quite rival the planned ECB, but will be 20 storeys high and rise above a podium, ensuring a place among the landmarks of Port Louis.
The Bank of Mauritius was established in September 1967 and the organisation is modelled on the Bank of England.
CONSTERNATION FOR DAVIES
Shocks to the system are hardly a novelty for Sir Howard Davies - after all, he has devoted a great deal of his professional life to eliminating them. However, placard-bearing students are an altogether new kind of challenge for Britain's former top financial regulator. Instead of giving them a lesson in risk management he had to succumb to pressure and pass up a seat on the board at French oil group Total after students at the London School of Economics, where he is the big chief, objected to their director taking a post in a company that is the largest remaining investor in Junta-run Burma, renowned for its human rights abuses.
On announcement of his decision to turn down the role Davies declared: "I make no personal criticism of the company's investment in Burma," explaining however: "I recognise that the issue is one on which there are strong feelings within the school community."
Accepting the job would be too risky: it would "generate continued controversy which would be unfortunate for both the school and the company."
16 March 2004
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By Benedict Mander
Central Banking Publications
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GOLD SALE CONTROVERSIES CONTINUE DESPITE THE NEW PACT
If Jean-Claude Trichet thinks that he has sorted out the gold market for the next five years with his new gold pact, he will probably have to think again. True, the gold market likes what it sees - the promise of sales by the European central banks being kept within 500 tonnes a year from next September for five years. That's within the kind of tonnage figures that were expected and already discounted, even though significantly higher than the 400 tonne annual rate under the current five-year agreement. But no indication has been made as to how the 500 tonnes to be sold will be divided between countries and this could give rise to serious wrangling in the future. Politicians around Europe are itching to get their grubby little fingers on the proceeds from all that lovely gold, but won't such a grab be frowned on by guardians of the currency? What about those Maastricht rules forbidding central banks financing government spending with asset sales? Or is it alright if it is used to finance educational foundations, as the Bundesbank's Ernst Welteke and France's prime minister, Jean-Pierre Raffarin, want?
But the Bundesbank has already got its fingers burnt by the German parliamentarians who insist that the central bank hand over all the money to the government. The Bundesbank says it will have to think again about the whole proposal if the government insists it wants the money. All in all, it was a great mistake for Welteke to have raised this issue to start with. If gold sales become embroiled in political rows all over Europe, that will be yet another tiresome hassle for the ECB to sort out - and an unwelcome distraction from its main job.
BANQUE DE FRANCE CALLS IDEA "CRAZY"
Christian Noyer, the new head of the Banque de France, is believed to be furious with fellow ECB governor Ernst Welteke for having raised this subject. Now the French politicians are on the trail. After Raffarin took up the idea, backing the sale of "gold surplus stocks to finance research" under the slogan "today's gold for tommorrow's gold" on March 4, Laurent Fabius, former Socialist Finance Minister, suggested that gold should be sold to finance social housing. But the central bank signalled its opposition to selling gold for research spending. An official at the Banque de France was quoted by Les Echos, a French business newspaper, as describing the idea as "crazy."
According to Agence France Presse,
Raffarin does not even have universal support in his party for
the idea. "I don't think it's a good idea," said Philippe
Marini, head of the Senate Finance Commission, who belongs to
Raffarin's centre right UMP party. Adding that "there's no
miracle formula" for public spending, he voiced opposition
to "selling the family jewels to round off researchers' monthly
pay-cheques."
IMF CONTENDERS LINE UP AFTER KÖHLERS SURPRISE EXIT...
Horst Köhler's decision on Thursday March 4 to step down a year early from the IMF to accept a nomination to become German president has aroused a lot of speculation as to who will replace him as head at the Fund. Spaniard Rodrigo Rato seemed to have it all sewn up until the Socialists came to power this weekend - the question now is whether the new prime minister, Jose Luis Rodriguez Zapatero, would rather propose a conservative Spaniard to no Spaniard at all.
Still, it's always nice to be mentioned as a candidate for a top job and several prominent finance chiefs will have been gratified to see they have not been forgotten yet. A new round of horse-trading seems set to emerge as European states vie for their turn to have a national at the head of this international organisation. It seems everyone wants to prove they have a man fit for the job - with candidates being proposed from Ireland, Italy and Belgium amongst others. Competency in the job is not always the first qualification that comes to mind when looking at governments' official candidates.
The probable exit of frontrunner Rato, means the French government may push their man, Jean Lemierre, a former head of the Treasury who has been the president of the European Bank of Reconstruction and Development since 2000. The French, who until four years ago had held the top post at the Fund for many years, and who already have a national heading the ECB, had not been pushing their candidate.
Tradition has it that the European states decide a new candidate between them, however, for those looking on the tradition may appear, to say the least, frustrating. So if the Europeans can't come up with a credible candidate soon there will be calls within the Fund to look further afield - possibly to South America or Asia. The pressure is on...
UPDATE
The incoming Socialist Spanish prime minister Jose Luis Rodriguez
Zapatero said on Wednesday that he backed outgoing Economy Minister
Rodrigo Rato as candidate to be director general of the IMF.
Zapatero said: "It is clear
that we want him to be elected and I think that there is a chance
that he will be." He said in remarks on Spanish radio Onda
Cero: "It would be good news and we shall do everything to
bring it about."
Zapatero added that there should be an unwritten rule that whenever
there was a possibility for a Spaniard to hold a post in an international
institution, the governing party, whether it be the conservative
Popular Party or the Spanish Workers' Socialist Party (PSOE) should
support the person.
SIZE MATTERS ON THE ECB BOARD
More euro-jostling continues in the selection of a replacement for Domingo Solans on the ECB executive board. EU finance ministers postponed a decision on March 9 as tensions between large and small EU states persisted.
Solans steps down from the six-person board on May 31. Countries have been lining up the cream of their financial crop to take over the prestigious post. The three remaining candidates are Ireland's Michael Tutty, Belgium's Peter Praet and Spain's José Manuel Gonzalez-Paramo.
In the ongoing battle of the big v little, larger states have sided with the Spanish candidate to ensure that the big economies are always represented. Ireland and Belgium are among the four eurozone countries yet to be represented on the board.
The big guns had been thrown into disarray when Rato seemed all lined up to be the next chief at the Fund as two Spaniards awarded top slots at the same time may have been too much. Now Rato's chances look slimmer at the Fund, so do Ireland's and Belgium's on the board.
ECB TO BUILD "PALACE IN THE SKY"
The winning designs for the new ECB premises feature twin towers spectacularly twisted and conjoined by a glass atrium with central bankers transported from one side to the other on moving floors and escalators. On the 40th floor, there will be a "palace in the sky" , a flying-saucer shaped protrusion that will house the holy of holies, the ECB boardroom, where giddy officials will ponder key monetary-policy decisions for the eurozone while contemplating the environs of Frankfurt spread out below them..
At ground level, the entrance and a conference centre will be created in a 1920s fruit and vegetable market which will be "left untouched".
The brief for the architectural competition says "public buildings are conveyors of meaning and this one in particular symbolises the European monetary union and our currency, the euro." The jury's comment on the winning design was "this concept has an intelligent combination of old and new in a sculptural form." The cost will be ¤100m.
ECB CALLS FOR MORE SPENDING
It's not often you hear central bankers calling for people to go out and enjoy themselves, but that's the message coming from the ECB these days. And the secret? Confidence.
Confidence. Confidence. Confidence. Say it enough times and people will believe it; Jean-Claude Trichet practiced his English pronunciation of the word 17 times as he faced down a barrage of questions following the interest rate decision on March 4. Confidence is what the European economy is lacking at the moment, the president said, and European citizens should have more faith in their new central bank, their new currency and go out and spend.
Spend!
"We feel it is our responsibility to tell the citizens, our fellow citizens, you can have confidence, we are here, the situation is under control, perhaps more so than you think. It is time for you, if you wish and if you are hampered only by these fears, it is time for you to consume, it is time for you to invest." The governing council tries to be "confidence-inspiring" and "one of the ways we have to improve confidence is to say, well, there is an ECB, it is there, you can be sure that your purchasing power will be protected over time, not only today or tomorrow, but over time."
How reassuring. With the euro
notes now bearing Trichet's signature no one can say he does not
put his money where his mouth is.
EURO CENTRAL BANK PROFITS UNDER PRESSURE
In an indication of the increasing strains on balance sheets of central banks in the euro area, the Bundesbank reportedly saw its annual profit fall to less than ¤1bn ($1.2bn) last year as a result of the strong euro, which depresses the value of dollar-denominated assets. The Bundesbank transfers most of its annual profits to the government and Berlin had been hoping for around ¤3.5bn for last year. So with less than one billion in profits from the Bundesbank, the government will have a cash shortfall of some ¤2.5bn in its 2004 budget, equivalent to about 10% of total new borrowing planned for this year, according to Handelsblatt.
The finance ministry refused to comment on the information. The official figures are scheduled to be published on March 24.
CENTRAL BANKS BETTLE WITH THE COUNTERFEITERS
The ease with which your friendly PC can be used to print out reasonable copies of banknotes has long been a worry for central bankers. Now the Central Bank Counterfeit Deterrence Group has developed a new system to prevent personal computers and digital imaging tools from being used to make phoney banknotes. The Bank for International Settlements, in whose headquarters the group's secretariat is located, reported on Tuesday March 9 that major hardware and software manufacturers have voluntarily opted to use this technology.
The statement from the BIS claimed that the system consists of "anticounterfeiting technologies which prevent personal computers and digital imaging tools from capturing or reproducing the image of a protected bank note". No difference will be made to the effectiveness of personal computers in any other respect.
Twenty-seven central banks and note-printing authorities are members of the Central Bank Counterfeit Deterrence Group.
BALKANS JOIN FORCES TO CATCH OLYMPIC COUNTERFEITERS
Senior Greek central bankers and police officers travel to Bulgaria this week to help authorities there to crack down on gangs who may - intelligence sources say - try to produce counterfeit US dollars and euro notes in Athens during the games when about 1.5m overseas visitors are expected in the city. Greek and Bulgarian officials will be holding talks in Sofia, the Bulgarian capital, to discuss means of coordinating police efforts to fight the counterfeit gangs. Experts from the ECB will also attend.
CENTRAL BANKERS SEARCH FOR MISSING NOTES
Spanish central bankers are attempting to locate 41m bank notes of the largest denomination - ¤500 ($785) - that have been issued since the euro became legal tender. Unsurprisingly shopkeepers do not accept these notes, so Spaniards do not carry them in their wallets - presumably using them instead to stash undeclared earnings. One Bank of Spain economist is quoted as saying "we know they exist but no one has ever seen them."
GOT CHANGE FOR A MILLION?
It must have been annoying for Alice Pike to have to break a note to pay for a relatively insubstantial amount. On being told at the check-out that her $2.32 gift vouchers would not cover the bill, Pike reached into her wallet for something larger...
The cashier at a branch of Wall-Mart in the US had to ring for assistance when the 35-year-old Pike handed over a $1m note to pay for her $1,671.55 of groceries. Rather than being handed $998,328.45 in change, Pike was arrested by the police for forgery.
Pike claims that she was given the note (and two more that were later found on her), by her husband and believed them to be real. The US treasury does not issue any notes larger than $100. Notes with higher denominations of $500, $1000 and $10,000 are still in circulation, but have not been printed since 1969 due to under-utilisation.
SERBIA'S JELASIC MOVES IN
The new governor of the National Bank of Serbia, Radovan Jelasic, took office on Monday March 1 with remarks to the staff that said all the usual things that central bankers are expected to say on such occasions. The goal of the NBS would be to maintain the stability of prices and the country's financial system. To that end, he said there would be a stable monetary policy, unobstructed payment operations, responsible management of foreign currency reserves and overall regulation of the banking system.
The former governor, Kori Udovicki, said she had been honoured to work for the central bank and wished the new management success. Jelasic thanked Udovicki and the outgoing governing council for their responsible management. He was a deputy governor under Udovicki's predecessor, Mladjan Dinkic, who is now finance minister.
Udovicki was ousted as governor of the central bank after Serbia's new parliament annulled her election. She had been nominated for the post by the Democratic Party, which has since fallen out with the rest of Serbia's pro-reform bloc and has been excluded from the coalition government led by Vojislav Kostunica, leader of the Democratic Party of Serbia, another reformist party.
DINKIC'S BUDGET
Mladjan Dinkic, predecessor to Udovicki as governor of the National Bank of Serbia and now finance minister, has announced that Serbia's long-overdue 2004 budget must be adopted by the end of March.
He told press "this will be an anti-recession budget because the previous one was largely responsible for the crisis we are now in." He has said that a raft of new tax laws will be adopted in the second quarter that will reduce and abolish some taxes and create institutions to underwrite banking loans in order to stimulate banking growth.
CHILE'S GOVERNOR DREAMS OF "DEEP REFORM"
I suppose there's nothing wrong with being optimistic, even in Latin American central banking. Vittorio Corbo, governor of the Central Bank of Chile, wants "deep reform" of Latin American institutions and strong policies to recover from the "lost decade" of the 1980s and recent disruptions that have affected some of the largest economies in the region.
In a recent talk, he said "we don't have to invent anything new", claiming that the implementation of long-needed reforms would serve the area better than searching for any quick cures to the continued economic stagnation.
Strong institutions, he claimed, must be developed in order to protect the region's economies from contagion and shocks. He also cited fiscal responsibility, flexible exchange rates, more openness to trade and better access to markets in developed economies as crucial to Latin American economic success.
LEANING INTO THE WIND...
Tom de Swaan, former executive director at the Dutch central bank and a current member of the board of the UK Financial Services Authority has taken the helm of a new project at ABN Amro, where he is now chief finance officer. He is overseeing the bank's efforts in next year's Volvo Ocean Race, the biggest round-the-world yacht race.
The bank is doing all it can to ensure that chance plays as small a part in the project as possible - drawing up a strategy for nautical success that any economist would be proud of. It is investing ¤20m to build two boats for the competition - risk assessment having shown that not only will having two boats halve the likelihood that the logo is lost somewhere in the pacific, but also that lessons from designing and building the first boat can be used to optimise the performance of the second boat.
Coupled with investment in top boat builders it seems the former central banker is keen to prove that leaving fortune to the winds is a thing of the past.
VANHALA RETIRES AND FINNISH SEARCH STARTS
Matti Vanhala, governor of the Bank of Finland since 1998, is retiring to receive treatment for cancer. Matti Louekoski, a deputy governor, will take over the reins until a new governor is appointed to the job, which brings with it a seat on the ECB's rate-setting governing council.
In a tribute to his work on behalf of the ECB and the common European currency, Jean-Claude Trichet has issued a statement saying that Vanhala has made an important contribution to the work of the ECB council ever since it was set up.
The search for a successor has already started and the parliamentary supervisory council, a cross-party committee, will draw up a short list of names for the government amid calls from industry and economists for the new chief to be picked for his economic abilities and not as a result of political concerns.
CENTRAL BANK "SOLDIER" TAKES HIS LEAVE
A quiet man of central banking in America is retiring. After more than a decade in the post, J. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond and a firm supporter of Alan Greenspan, is hanging up his boots. Understated and low key, Broaddus has won high praise for his record. "He sort of set the standard for how you would want a bank president measured," said David Jones, an economist who has written several books about the Fed. "I call him a solid central bank soldier."
It seems, however, that the long-term central banker has had enough of strategy planning for the time being. When asked how he planned to spend the next several years he replied "beats me."
JARAI JITTERY OVER EURO
Is Zsigmond Jarai, governor of the National Bank of Hungary, wise to air his concerns about the Hungarian euro accession? His reservations somewhat pre-empt the government decision on whether to keep to the 2008 target for entry scheduled for the end of April. Jarai was more than a little hesitant at the prospect of 2008 entry. He claimed that at present the necessary support was not in place either from politicians, society, trade unionists or economists - a fairly comprehensive list. However, Jarai also advised against frequent shifting of the euro accession target as posing problems for the stability of the country.
"Theoretically, it is still possible to meet the criteria necessary for the introduction of the euro in 2008," he said this week. But, "this will only be possible by making considerable macroeconomic sacrifices." He added that the central bank continues to argue for the earliest possible adoption of the euro.
Meanwhile, such internal debates in accession countries often seem to ignore the ECB's clear ruling that even to join ERM II (the first stage towards adopting the euro, and a stage that lasts a minimum of two years) countries are expected to have completed basic policy adjustments. The ECB clearly wants them to take their time: "Given the risks implied by premature rigidity of the exchange rate, it might be appropriate for some new member states to only consider applying for ERM II membership after a further degree of convergence has been achieved."
AVIODING THE "E" WORD
Keith Vaz, a former Europe minister in Britain's Labour government, has been counting how many times ministers have talked about the euro recently. Between June last year and the beginning of February, Tony Blair referred to it in two of his 11 speeches, John Prescott (deputy prime minister) did not mention it at all and Patricia Hewitt, the trade secretary, devoted three of her 23 speeches to it. Gordon Brown, the chancellor of the exchequer, mentioned the euro in half of his 11 speeches but as the Financial Times put it, Brown tends to use the word "no" in close proximity to the word "euro". "We will never win the argument if we are scared to speak out on it," said Vaz.
3 March 2004
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By Benedict Mander
Central Banking Publications
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NEW INDIAN GOLD SCHEME AIRED
Here we go again. The Reserve Bank of India is considering a proposal from the government to launch yet another new gold deposit scheme that is designed to both curb the demand for physical gold and satisfy investors who favour gold as protection against unforeseen circumstances. The fact that all such schemes in the past have had little success does not seem to put the government off.
The central bank held a meeting with leading banks, commodity exchanges and bullion associations to canvass their views on the scheme. Under the scheme, investors will be given certificates stating their ownership of the amount of gold that they have paid for. These certificates will be tradable on the commodity exchanges so that investors can buy and sell the commodity without incurring the associated transaction and storage costs.
That's the theory. The trouble is, investors prefer real gold to paper promises.
BI AIMS FOR SKILLS INCREASE IN STAFF
Supervisory staff at Bank Indonesia will be required to receive competence certificates under new measures to improve the banking industry. The head of the financial system stability division at the central bank, Mulyaman Hadad, was quoted as saying "The certification will be issued by an institution outside Bank Indonesia".
As an example, he said a credit analyst would be required to have competence in the area of risk analysis in a number of economic sectors such as agriculture, information technology, etc.
Bank Indonesia's banking supervisory role has been criticized following the recent emergence of lending scams at Bank BNI and Bank BRI.
HAPPY BIRTHDAY ALAN!
Alan Greenspan is 78 on Saturday, and although he is expected to be reconfirmed as the chairman this summer, his term as a governor will end Jan. 31, 2006, and he cannot serve again. Now is his last chance to stamp his imprint on history. Signs are, he is seizing that chance.
Since when did he make so many comments on so many subjects as in the last few days? Since when was he so clear in the messages he wants to get across?
The scope of his comments is breathtaking. On Monday, Greenspan discussed the drawbacks of 30-year fixed-rate mortgages. The next day he told Congress to regulate Fannie Mae and Freddie Mac - or, better still, privatize them. On Wednesday he said that Social Security benefits should be cut for future old age pensioners. All these were highly controversial. Then on Saturday in a speech at Stanford University he questioned the current legislation on intellectual property rights: "How appropriate is our current system - developed for a world in which physical assets predominated - for an economy in which value is increasingly embodied in ideas?"
Alfred A. DelliBovi, the president of the Federal Home Loan Bank of New York, interviewed in The American Banker, pointed out Greenspan had less than 24 months left: "In that context, I think someone whose life has been devoted to influencing public policy would quite naturally want to make sure his messages were delivered loud and clear."
"It's as if he has renewed vigour," said Oliver Ireland, a partner with the Morrison & Foerster, who was a Fed associate general counsel for 13 years under Mr. Greenspan. "He's feeling like he can speak his mind. He doesn't have to be circumspect for political reasons. He senses the end of his reign."
Bill Seidman, a former Federal Deposit Insurance Corp. chairman and now a CNBC commentator, told The American Banker that it had not always been Greenspan's style to voluntarily inject himself into politically charged matters. Mr. Seidman recalled interviewing Mr. Greenspan in the 1970s for a job in the Ford White House.
"He told me without a doubt that he was only an economist and would never participate in the political process. Either that was a little white lie, or he's learned a lot. In any event, he's an important player, and he sees himself in a position where he can say things other people can't say."
GREENSPAN ACCUSED OF FOLLOWING A PARTISAN AGENDA
Today Paul Krugman, columnist on the New York Times and well-known economist, issues a searing indictment of Alan Greenspan for having used his office to promote a right-wing partisan agenda over many years:
"Last week Mr. Greenspan warned of the dangers posed by budget deficits. But even though the main cause of deficits is plunging revenue - the federal government's tax take is now at its lowest level as a share of the economy since 1950 - he opposes any effort to restore recent revenue losses. Instead, he supports the Bush administration's plan to make its tax cuts permanent, and calls for cuts in Social Security benefits."
Krugman points out that three years ago Greenspan urged Congress to cut taxes and that he assured Congress that those tax cuts would not endanger future social security benefits. And last year he declined to stand in the way of another round of deficit-creating tax cuts.
"The Bush White House has made it clear that it will destroy the careers of scientists, budget experts, intelligence operatives and even military officers who don't toe the line. But Mr. Greenspan should have been immune to such pressures, and he should have understood that the peculiarity of his position as an unelected official who wields immense power carries with it an obligation to stand above the fray. By using his office to promote a partisan agenda, he has betrayed his institution, and the nation."
RIGHT ON CHINA
One of Greenspan's predictions that seems to be coming right concerns China. Greenspan has long maintained that the inflow of overseas funds into China will eventually fuel inflation, or spur the authorities to adopt a more flexible exchange rate policy. At the weekend China's prime minister, Wen Jiabao, and the head of the People's Bank of China, Zhou Xiaochuan, warned against rising inflation. "Currently it is clear that there is some inflation" said the central bank governor. China's consumer price index at present is rising moderately - up 3.2% in the year to January - but if Greenspan is right and the central bank cannot go on sterilising the domestic currency created by its huge intervention to prevent the currency from appreciating against the dollar, a lot more inflation could be in the pipeline.
BUT THE ECONOMIST IS GRUDGING
According to The Economist this week, Greenspan no longer even makes the short list for the title of the world's best central banker. The title goes to Bank of Japan Governor Toshihiko Fukui, praised for steering Japan's monetary policy in the right direction - at last. Fukui, intoned the magazine, "has been in his job for only 11 months and has, for once, actually steered monetary policy in the right direction." Fukui has "shown greater zeal to use unorthodox monetary policies" unlike his predecessor, Masaru Hayami, who was described by the magazine as "quite possibly the world's worst central banker."
Alan Greenspan was blamed "for allowing the stock market bubble to inflate in the late 1990s."
Jean-Claude Trichet, who assumed his post at the European Central Bank only in November, was boringly criticised for being "too slow to cut interest rates."
PHILLIPPINES CENTRAL BANK CONSIDERS BIS PROPOSAL
Bangko Sentral, the central bank of the Phillippines is considering a proposal from the Bank of International Settlements (BIS), to takeover management of the bank's international reserves.
The BIS has reportedly expressed an interest in acting as an "external fund manager" for the central bank, which at the end of January held dollar reserves of just over $16 billion. The BIS offered to manage the bank's reserves through a "multicurrency portfolio against the J.P.Morgan Index as the benchmark fully hedged into the US dollar."
The BIS, which the Phillippines became a member of only last year, relies on linked trading rooms in Basel and Hong Kong for intermediating the funds of central banks and offers a range of instruments specifically designed for them. Services offered include asset management and the granting of short-term credits to central banks.
PMA CHIEF HADDAD ACCUSES ISRAEL
The governor of the Palestine Monetary Authority Amin Haddad on Thursday 26 February accused Israel of "daylight theft at gunpoint" after Israeli troops seized over $8 million from banks in the West Bank city of Ramallah.
Israeli security forces said last Wednesday's raids on three banks in Palestinian President Yasser Arafat's headquarters city aimed to empty accounts used by Palestinian militant factions to fund suicide bombings and other attacks on Israelis, Reuters reported.
"(This is) baseless and untrue," Amin Haddad, head of the Palestinian Monetary Authority, said in an interview. "What happened yesterday was a blunt, unjustified ungrounded daylight theft at gunpoint by the Israeli army from two Jordanian banks operating in Palestine, as well as the Arab Bank and the Cairo-Amman Bank," Haddad said in English.
Haddad said Israeli forces singled out 400 institutional, charity and individual accounts, commandeering vaults, counting out money and putting what they wanted into bags for removal. A number of larger accounts were cleaned out, he said. Haddad gave two examples of affected institutions -- Gaza's Islamic University and the Zakat Committees, a group overseeing small donations to the poor required of every Muslim.
"Is the Islamic University a terrorist organization? The Zakat Committees... have a proven track record of apolitical activities and all their work is charity."
FORMER CENTRAL BANK GOVERNOR WARNED BY GOLDENBERG COMMISSION
Erik Kotut, governor of the Central Bank of Kenya at the time of the notorious Goldenberg Affair has been warned by the Goldenberg Commission about allegedly lying under oath in the ongoing court case in which he has been called as the 60th witness. Kotut presided over the bank's affairs at the time when the Goldenberg International company is charged with receiving hundreds of millions of dollars from the government for non-existent diamond and gold exports under an export compensation scheme.
A prosecution lawyer accused Kotut of being forced out of the Central Bank by World Bank/IMF officials at a meeting held in Washington in 1993. He claimed that Kotut was asked to resign by President Moi after this meeting with the lenders. Kotut denies that he allowed Goldenberg to manipulate and defraud the Bank or that he attended a meeting at the Grosvenor Hotel in Park Lane, London, where it is alleged that the scheme was devised. He also asserted that he never met Kamlesh Pattni, owner of Goldenberg International, while serving as governor between 1988 and June 1993.
MONETARY POLICY COMMITTEE "NOT FEASIBLE" TO COMMITTEE
Derick Latibeaudiere, governor of the Bank of Jamaica, has claimed that the establishment of a monetary policy committee is unfeasible given the operational structure of the bank.
Latibeaudiere, an advocate of central bank independence, argued that Jamaica lacks the fundamental pre-requisites that would make such a committee practical or constructive. He said "it is almost universally true that monetary policy committees exist in the context of institutionally independent central banks". His comments were in response to a move championed by the private sector to set up a such a committee.
SPAIN ENTERS RACE FOR ECB SEAT
Spain has entered the frame proposing a candidate for a place on the governing council of the European Central Bank against both Ireland and Belgium, who have already thrown their hats into the ring. Spain has proposed professor of public finance Manuel Gonzalez-Parano, a member of the executive and governing boards of the Bank of Spain.
Ireland has already put forward Mr Michael Tutty, who is currently a vice president of the European Investment Bank.
Belgium has nominated one of its national bank directors, Mr Peter Praet, and Portugal is choosing a candidate with the intention of joining the contest as well.
The post falls vacant on 31 May when Spanish board member Eugenio Domingo Solans steps down and an initial decision on a preferred candidate is expected to be made by eurozone finance ministers on March 8. However, the political in-fighting connected with the issue is threatening to pit the smaller countries of the single currency area against the bigger ones, who are fearful of their loss of influence within the ECB as Europe prepares for its historic expansion eastwards.
BILL MCDONOUGH TO GET FPA GONG
William McDonough, chairman of the Public Company Accounting Oversight Board, and former president of the New York Fed will be awarded the Foreign Policy Association Medal this week.
McDonough will deliver the keynote address at the Foreign Policy Association's 2004 Financial Services Dinner on Wednesday, March 3 at The Pierre Hotel in New York City. He will be awarded the FPA Medal, joining a prestigious list of past recipients including former President Bill Clinton; Alan Greenspan, chairman, Board of Governors of the Federal Reserve System; Alice M. Rivlin, former vice chair, Board of Governors, Federal Reserve System; Robert E. Rubin and Lawrence H. Summers, former secretaries of the treasury; and James D. Wolfensohn, president, The World Bank. The medal recognizes individuals who demonstrate responsible internationalism and work to expand public knowledge of international affairs.
McDonough became chairman of the Public Company Accounting Oversight Board on June 11, 2003, joining the Board after 10 years as president and chief executive officer of the Federal Reserve Bank of New York. He was appointed the eighth president and chief executive officer of the Federal Reserve Bank of New York on July 19, 1993. In that capacity, he served as the vice chairman and a permanent member of the Federal Open Market Committee (FOMC), the group responsible for formulating the nation's monetary policy. McDonough also served as a member of the Board of Directors of the Foreign Policy Association.
FAZIO UNDER INVESTIGATION
While still the centre of the controversy surrounding the Banca D'Italia's handling of the Parmalat affair, the governor, Antonio Fazio now finds himself under investigation in connection with a probe of alleged fraud surrounding the sale of securities by an Italian bank. Fazio has been placed on the official register of those under investigation in the probe of Banca 121, a unit of Banca Monte dei Paschi di Siena SpA, based in Trani, southern Italy.
A lawyer has filed a complaint against Fazio for failing to protect the savings held by two of his clients at the bank. Under Italian law, prosecutors are obliged to open investigations once a formal complaint has been filed, although this does not mean that charges will be filed. There is no sign at this stage that it is anything more than a routine procedure.
So far Fazio has weathered the storm, as well as efforts by the finance minister, Tremonti, to weaken him.
"He's the Teflon man", one London analysts was quoted as saying. "Nothing seems to stick".
However, a leading newspaper, Corriere della Sera, said that while the Bank of Italy "probably will manage to demonstrate that it did not break the law, it will be difficult to escape the political accusation that it ignored or went along with errors and some excesses by a part of the banking system".
GERASHCHENKO SLAMS CENTRAL BANK STAFF
Viktor Gerashchenko, former governor of the Central Bank of the Russian Federation, has lashed out against the current management of the central bank.. On a Russian breakfast programme, Gerashchenko claimed that the present team at the bank do many things wrong because they are "non-professionals".
He also claimed that he had never held an ambition to be president of Russia, and his failed bid for the position was initiated by the leadership of the Motherland bloc that he stood as candidate for. He claimed that he was selected to stand despite having no chance of winning, as the bloc decided not to put its leaders at risk by nominating someone with nothing to lose.
When asked why, after a career in banking he was sitting on the committee on property relations rather than the committee on credit organisations and financial markets in his position as a Duma deputy, he replied that it was difficult for him to get even his present job since the Duma is entirely dominated by the One Russia majority.
He said "I would not call it a case of scheming, perhaps I do not even find it offensive. But they don't like us, what can we do? I reckon it shows the incompetence and lack of experience of the Duma leadership, their euphoria."
Outside observers were inclined to discount Gerashchenko's remarks on the current leadership team at the central bank as reflecting his regret at not being at the centre of affairs, still less head of the central bank, any longer. Few people would describe the team headed by Sergei Ignatiev and including deputy governors such as Andrey Kozlov, Tatiana Paramonova (a former governor), Arnold Voilukov and Oleg Vyugin as "unprofessional".
GERASHCHENKO ELECTED TO CO-CHAIR OF RUSSIAN REGIONS PARTY
Viktor Gerashchenko was elected co-chairman of the Russian Regions Party on Monday (15 Feb). The decision was made by the party's congress, after former communist Sergey Glazyev was booted from the post. The party's leadership is to remain collective. However, the party stressed that the notion of changing the leadership's structure will probably be raised at the next congress due in June.
There are currently seven co-chairmen in the party, including the ultra nationalist Dmitriy Rogozin. The regions party is trying to oppose President Putin's centralisation drive, which has involved barring the regions and provinces from exercising independent law-making powers, and abolishing thousands of existing laws and regulations at the regional level.
DISPUTE BETWEEN ITALIAN REGULATORS
Italy's anti-trust regulator, Giuseppe Tesauro, wants unique control over bank mergers,. "Under the current proposal there could be a problem: who decides when the two regulators don't agree?," Tesauro told newspaper Il Sole 24 Ore. "This is an area where we don't need conflicts of responsibility."
The latest draft of Italy's post-Parmalat regulatory reform proposes to split merger veto powers between the two bodies. The government's initial proposal would have completely stripped antitrust responsibilities from the Bank of Italy.
SACKING FOR SERBIA'S UDOVICKI
Kori Udovicki, the reformist governor of the National Bank of Serbia appointed last July, has been fired by the newly elected parliament headed by the prime-minister-designate, Vojislav Kostunica. The action appears to be motivated by retaliation from a member of the Kostunica-led coalition, the centre-right G17 Plus party, whose leader, Mladjan Dinkic used to be the central bank chief until he was replaced by Udovicki. An associate of Dinkic, Radovan Jelasic, has been put forward as the new governor.
BANK INDONESIA SEEKS REPLACEMENT DEPUTY GOVERNOR
President Director ECW Nelloe of Bank Mandiri said on Wednesday (18 Feb) he was not prepared to be nominated for the post of senior deputy governor of Bank Indonesia. Anwar Nasution will end his term as deputy governor of Bank Indonesia, the central bank, on July 26.
"I am not available. Why, that is my business. But it is not true that I have been offered the post," Nelloe said according to reports.
© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.
Benedict
Mander
Email: bmander@centralbanking.co.uk
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