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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.
21 October 2002
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A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
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AFGHANI ISSUES NEW LEASE OF LIFE
Amid efforts to breathe life back into Afghanistan's skeletal economy, the central bank has now properly taken centre stage. The governor, Anwar al-Haq Ahadi, has been working round the clock to ensure the smooth introduction of the country's new currency, the afghani, which hit the bazaars on 7 October. This now makes Da Afghanistan Bank a fully operational central bank, a role denied it for a decade. Currency issue had previously been controlled by the various warlords, who seemed to have little regard for the hyperinflationary consequences of their actions.
In order to resuscitate the economy, Ahadi has decided to trim a few noughts off the value of the old currency. He says the redenomination "is very important because unless we know how much money is in circulation, it would be difficult to conduct meaningful monetary policy."
Grateful Afghans will now be able to rid themselves of 1,000 shabby old afghanis in return for just one crisp new afghani, printed by the German firm, Giesecke & Devrient... 40 to 45 of them buy one dollar. It will take until December to purge the country of the battered and unwieldy old currency, trading at around 46,000 to the dollar when it was laid to rest, which people had got used to carting around in titanic quantities for even relatively minor transactions. Ahadi said, "We want to remove that inconvenience from economic interaction." Some 1,800 tonnes of old afghanis will be burned or recycled.
One slight difficulty is that there are a number of other types of notes in circulation, and, bewilderingly for foreigners, as many as three separate currencies. Warring factions printed various different series of banknotes, and by no means all of these notes are registered at the central bank. Worse still, they have been printed repeatedly with the same serial number, so there is really no way of knowing how many of the old notes are in circulation, although estimates are in the region of 15 trillion afghanis - which are being replaced with around 27 billion new ones.
The country is awash with bogus banknotes, and the central bank has been obliged to accept wholesale one type, the junbishi currency, which predominates in the north, and is worth half the value of the old afghani. As a large swathe of the population's wealth is held in these notes, the central bank has no choice but to accept them - as well as certain types of forged notes - if stability is to be maintained, even though this means some of the warlords will be making tidy profits on their old notes. Ahadi says that the operation will be a logistical nightmare, and some $5-6 million will be spent in transporting the new notes by air and road around the country.
President Karzai said the notes are "a very important issue for Afghanistan's honour and national and political unity". This is reflected in the design of the notes, which depict Afghanistan's architectural jewels rather than personalities which may cause rifts in the people.
TURKMEN CENTRAL BANK UNDER A TYRANT'S RULE
The tyrant of Turkmenistan, President Niazov, who has locked up all political opponents other than those who escaped abroad, and who has fired a succession of central bank governors (Ymamdurdy Gandymov being the last) on trumped up and unsubstantiated charges, has now forced the central bank to issue a set of memorial gold and silver coins, devoted to his own "radiant image" and that of his mother. Having banned use of all electronic payments, he this week also wrecked the commercial banking system's ability to carry out international payments by forcing each and every foreign currency payment to be made through the Central Bank of Turkmenistan, which itself is being investigated by the state security apparatus for an alleged illegal electronic transfer of $41.5 million to foreign bank accounts.
The last time any semblance of a reasonable economic programme came out of the country was in 1997-98, when former central bank governor Orazov (now a leader of the political opposition based in Moscow) tried to negotiate an IMF stabilization programme. The IMF's last contact according to its website dates back to 1999. The country has been described by the Wall Street Journal as "by far the worst failure" among the 15 nations that emerged 10 years ago from the breakup of the Soviet Union. And the central bank is inevitably at the mercy of a dictator who regards his entire country as his personal piggy-bank. Hence the frequent sackings of central bankers who are not given any chance to defend themselves or their record.
MODEST MACFARLANE
Central bankers are hardly famed for their swagger, but Ian MacFarlane is almost endearingly unassuming. Although he received the financial publication Euromoney's award of "central banker of the year" - which, as its name suggests, is very clearly being given to a person - the governor of the Reserve Bank of Australia insists on regarding the award "as very much a recognition of the performance of the Australian economy and of the Reserve Bank, rather than as a personal endorsement," the bank tells me.
MacFarlane shrugs off the praise and instead points to the glowing performance of his country's economy: "If the award is for the performance of the country and for the bank, then I am not surprised -- Because the numbers coming out of Australia have been so good for so long that I feel that Australia is due some recognition." Even then, he seems to attribute this to good luck, as Australia was spared the new economy boom whose aftermath America is now suffering. Furthermore, he describes Australia's economy as vigorous: "It wants to get up and grow so you don't have to entice it."
Where did MacFarlane learn such modesty? Raised in Melbourne, he spent six years at the OECD in Paris after graduating in economics, then moving straight to the central bank where it took him 17 years to edge his way up to governor. He admits to enjoying a spot of golf in his spare time, but is as modest about his performance on the fairway as he is at the bank. When asked his handicap he employed evasive tactics: "I think it would be bad if my handicap was very low because it implies that you haven't been working hard enough." But he seems to have worked hard enough on it to appear to be mildly irked by the better fortunes of some of his peers: "They do have a central bank tournament at the BIS annual meeting - and it is always won by an Asian governor."
His term expires next year, and as usual there is whispering in the corridors as to whether he intends to stay on. On the subject he obliquely said, "If you are young enough to do another one you will think about doing another one. So you see it in terms rather than points of time." Does 56 qualify as young enough? He refuses to give anything away: "I haven't committed myself either way and I am still thinking about it."
REPSE FOR PRIME MINISTER?
Einars Repse, who chucked in his job as governor of Latvia's central bank last December to have a go at politics, has struck it lucky. A tender forty, he may now go from Latvia's premier central banker to pole position in politics. His newly-formed party pipped others to the post in the country's hotly-contested recent election, narrowly winning the most seats. Repse's success can perhaps partly be explained by his elevation to household-name status in Latvia after successfully overseeing the replacement of the Soviet rouble with the Latvian lat in the early 1990s.
His New Era party won 26 seats, with the pro-Russian coalition For Human Rights in a United Latvia coming a close second with 24 seats of the 100 available. The only problem is that Repse seems reluctant to form a coalition with either the pro-Russian coalition or the People's Party - with 21 seats - and although talks are currently under way, some doubt his ability to form a lasting coalition. Repse pledged on gaining his victory to take a hard line against corruption. This is one of the major obstacles to Latvia's entry to the EU and Nato, and Repse intends to do something about it: "This is going to be a fight against corruption and criminality and it's going to be honest work... This work is not going to be for the interest of a party but for the nation."
STAYING OUT OF THE LIMELIGHT
In Colombia, the Banco de la Republica is caught up in a spat between President Uribe and the opposition Liberal Party, who have got it into their heads that it would be a fine idea to print a little more money (about 2.5% of GDP) to help the country out of its fiscal ailments. Obviously, they are blissfully ignorant of the demise of some of their neighbours. For his part, Uribe thinks this is a silly idea, pointing out that old problems cannot be solved by creating new ones.
The bank would like to come out in support of Uribe, as the law granting it independence in 1991 forbids it from lending money to the government anyway. But as an independent body, the bank is barred from entering into political debate, and tells me it is not taking a public position on this: "The media is looking for a public confrontation between the central bank and a group of politicians, so in these cases it is better to be cautious." Very sensible. Instead the bank prefers to communicate its opinions on such matters in its various publications, in which it is abundantly evident what its view on this would be. "The Bank opposes this kind of idea but doesn't confront directly with politicians. Instead, we are focusing on an education campaign to increase the level of people understanding about the risks of carrying out an irresponsible monetary policy."
ROGOFF ANSWERS BACK
Occasionally one gets the feeling that certain people at the IMF are a mite oversensitive. Strange, you would think, for an institution characterised as the "tough cop" of the global financial system and which has a reputation - however unfair - for being ruthless and, well, insensitive. It is true that the Fund has sustained a good deal of criticism recently, notably from self-appointed thorn-in-the-Fund's-side Joseph Stiglitz, and that it has every right to put forward its own side of the argument. The thing is, the Fund's chief economist, Ken Roggof, seems to be taking it all a little bit too personally. A recent article in Le Monde following the Rogoff-Stiglitz face-off, accused Rogoff of labelling Stiglitz a charlatan. He didn't, in so many words, and it is possible that Stiglitz knows that. Stiglitz probably doesn't care anyway. But Rogoff was impelled to write an overly serious riposte, laboriously setting out his version of the truth, when you'd have thought he had his work cut out minding the stability of the global economy. Le Monde didn't even publish it.
BANK INDONESIA REACTS TO BALI INCIDENT
Following the horrific bombing in Bali, Bank Indonesia was quick off the marks in intervening in the foreign exchange markets to steady the rupiah. Even though Indonesia has a free exchange-rate regime, the bank still monitors closely developments in the domestic foreign exchange market, "especially in a very special situation such as the terrorist attack in Bali," said a source at the bank, in order that volatility of the rupiah is not "excessive". The bank said: "It is our policy to stand ready to intervene in the domestic foreign exchange market, mostly by selling US dollars against rupiah to prevent it from depreciating rapidly". Also there has not been any run on the banks on the scale of the crisis experienced a few years ago. However the bank remains cautious: "We will monitor closely the impact of the attack and take the necessary actions if required."
THE TIDE TURNS AGAINST CANI
After the deputy governor of the Bank of Albania Dhame Pite was locked up over alleged offences in connection with a banknote emission tender - resulting in a loss of $600,000 to the state budget - the crowd now seems to have turned on the governor of the bank. A bevy of parliamentarians are now baying for the blood of Shkelqim Cani, who they are thirsty to see stripped of his governorship. 35 members of the Democratic Party, the Union for Victory and other opposition parties have signed a vote of no confidence in Cani, demanding that the Bank of Albania Supervisory Council jettison him for his supposed involvement in the scandal linked with Pite's arrest.
They argue that he knows - or should know - exactly what is going on in the institution, in particular the position of foreign reserves, and claim that such sums of money would hardly go missing unnoticed. They see Cani's removal as "the most important instrument" for restoring the Bank of Albania's reputation, which has been "stained by low-profile abuse. They claim that Cani is legally responsible for "allowing, tolerating or covering this act, and that "corruption is evident and intolerable."
The reaction of the leader of the ruling Socialist Party to the opposition's demands was lukewarm, believing that "it is the responsibility of independent institutions to decide on this question -- first we must hear the Prosecution Office's [position] and then it is up to parliament to decide." The issue will be discussed in a parliamentary session on November 6.
7 October 2002
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By Benedict Mander
Central Banking Publications
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ALAN ABROAD
With Alan Greenspan's crossing of the Atlantic to receive his knighthood from the Queen of England, Newsmakers could scarcely resist the temptation to pay the great man a visit - perhaps in the hope of achieving some kind of vicarious communion with the unmatched mind of the all-powerful, the all-wise, the all-merciful. While he was in the country, he last week dropped in on the new Treasury building in Whitehall which he was to open - just minutes away from Central Banking Publications, HQ, which for some unaccountable reason he missed.
It was a bitter disappointment. On entering the stately edifice that houses Her Majesty's Treasury, Newsmakers spied a shiny Jaguar rolling up to the entrance and the venerable Eddie George nimbly hopping out, come to provide moral support to his buddy Al, who was actually looking rather frail. I was then directed to a room where I could observe the proceedings from a video screen, metres away from the room where Big Al was appearing in person (which someone later told me was not actually full - 52 finance ministers and a handful of prime ministers from Commonwealth countries, and the president of the World Bank among others were insufficient to fill all the chairs).
The UK Chancellor Gordon Brown gave a desperately sycophantic speech introducing the generalissimo. True, a degree of deference is to be expected, but to hear Brown describe Greenspan as "our foremost ally, a great American, America's greatest central banker, not just of our generation but of all time" was enough to make an Englishman squirm. Foremost ally? What happened to Gordon's designs on Europe? Greatest central banker? Is Paul Volcker totally forgotten? After all, St Paul was the slayer of the inflation dragon. St Alan just has to make sure it does not revive - an altogether easier task. And now he is "on trial" in the media for bubble trouble.
Alan's own speech describing the importance of the UK as a financial centre and the Treasury's involvement in this was neutral. But he did not neglect to do his own bit of back scratching, referring to the Bank of England's "nearly mythical presence".
Newsmakers was unable to attend the ceremony of investiture, which was held in the library of Balmoral Castle, deep in the Scottish hinterland. By all accounts it was a splendid occasion, and one that Alan said, "I shall always cherish". Inquiries to the Palace whether this was followed by a round of Scottish country dancing, as favoured by the Royals, and how Alan fared with his rendering of the Gay Gordon, have gone unanswered.
Newsmakers, advice to Sir Alan - chuck it in now. Throw in the towel. Let your record speak for itself. The longer you stay, the more tarnished it will get.
GRETTA DUISENBERG IN TROUBLE AGAIN
Gretta Duisenberg has been up to her old tricks again. You may recall the episode a few months ago when she received death threats for hanging the Palestinian flag outside her home - but this has obviously not dampened her zeal for the Palestinian cause. The latest scandal arose when, according to the Associated Press, the ECB president's wife was interviewed on Dutch radio while taking part in a pro-Palestinian rally in Amsterdam. She was asked how many signatures she was hoping to gather for her petition against Israeli interference in Palestine. "About six million", she said, and then laughed. Abraham Moszkowicz's anonymous clients failed to see the funny side and are taking her to court for anti-Semitism, arguing that it is no coincidence that the figure is the same as the number of Jewish victims during the Holocaust. She can take solace in the fact that Arafat has suggested naming a new human rights institute after her.
SCOTCH EUROS
For all the soul searching in England over whether or not the country should drop the pound for the euro, across the border in Scotland there seems to be less worry. Indeed, there is such eagerness to be fingering euros that the grandees at the Bank of Scotland are campaigning for Scotland to become the first region in the EU to print its very own euros - should the pound be binned, that is, which it seems wouldn't cause them too much bother. At present, all euro notes are issued by the ECB - but some perspicacious Scotsman noticed that there is a clause in the Maastricht Treaty stipulating that individual nations are welcome to print their own euros. A perfect opportunity for the Scots to use this to assert their national identity. Perhaps put out that for historical reasons they have been denied a central bank of their own, or even a "Bank of England and Scotland", this represents another way of showing their colours.
ALBANIAN ARRESTED
An incident at the Bank of Albania has resulted in the arrest of the deputy governor, Dhame Pite. He is currently locked up in a prison cell where he stands a chance of remaining for some years. Pite is on trial after being detained last Monday on charges of "performing actions contrary to his duty and in violation of the equality of subjects in tender, according to the prosecution. The bank has verified the facts for me, candidly admitting, "this is a shame for our institution", and it looks unlikely that the bank will defend him in court.
Pite was busted for favouritism and allegedly accepting a backhander for awarding a tender in 2000 for the reprinting of the 1996 series of Albanian banknotes (originally printed by British De la Rue) to French banknote printers Francois Charles Oberthur. The tender represented a $583,000 increase from the previous price, and its acceptance was particularly "irregular" since De la Rue was offering less. Intriguingly, Oberthur's offer started off lower than De la Rue's, but by the time the contract was signed, the figure had mysteriously shot up - justified by greater "security" measures... Unfortunately for Pite, this did not go unnoticed, and constituted enough of a national economic loss to get the Albanian Investigation Authorities on his tail. They then called for the prosecution office to take action, which in turn put their case to the Tirana District Court - an irrevocable cycle of justice and retribution set in motion, the consequences of which look unlikely to be favourable for Mr Pite.
TURKMEN TURPITUDE
Oh, shame! Not five months into the job and caught red-handed. The president of Turkmenistan has once again cast out the chairman of the central bank for dabbling in affairs that do not, apparently, fit with the job description - although his predecessor was ditched for much the same thing. Imamdurdy Gandymow was given the boot "for abuse of office and in connection with criminal proceedings against him". Sounds like a fair cop, only it transpires that Gandymow's said criminal charges were filed by his very own employees at the central bank. But he had only been there since May - how could they have got onto him so quickly?
It is alleged that hefty quantities of cash were surreptitiously siphoned off to foreign bank accounts by one of the bank staff, Arslan Kakayew. The president said: "He has transferred, and with help from senior persons, about $42m from central bank accounts to accounts in foreign banks. In other words, he has simply stolen it". Needless to say, this Kakayew is nowhere to be found, and Gandymow has had to shoulder the blame. His successor is Shakersoltan Muhammedowa, previously head of the People's Bank. Good luck.
BLEJER OPTS FOR CALM
Mario Blejer, who for a brief but tempestuous spell headed the central bank of Argentina, has now landed a much mellower job as director at the Bank of England's Centre for Central Banking Studies. After unrelenting harrying from all sides in Buenos Aires, Blejer will certainly relish the sedate and secure surroundings on the seventh floor of the Bank of England's head office on Threadneedle Street. Before braving it at the central bank in Argentina, Blejer had done twenty long years at the IMF in Washington, and perhaps pined for a livelier environment - but he soon ended up with perhaps a little more than he had bargained for.
He revealed his dilemma in an interview in the Central Banking journal: "I wasn't very keen to take this position but they told me that we have to fix the problem. You can help to 'tend the wounded', I was told". But it was a thankless job, and after just six months he was fed up: "I felt under siege. Because of all sorts of threats, I could not move around freely. Life was uncomfortable". And what could be more comfortable than a nice stress-free job with ample peace and quiet to devote to study and research? Eddie George was delighted: "He brings with him a wealth of technical monetary expertise from his years at the IMF as well as front line experience from his role in Argentina at a very challenging time."
RUSSIAN RECRIMINATIONS
There seems to have been a small amount of controversy over the nomination of one of the seven board members of the Central Bank of Russia whose positions have now been confirmed. Six of them were reappointed although one, Konstantin Korishchenko, was a new nomination for the post of deputy board chairman. However it turns out that deputy chairman Viktor Melnikov's nomination was not especially well received by the Duma banking and budget committees, which had recommended that he be ditched from the board.
Luckily for him, the Duma's presidential representative Aleksandr Kotenkov stuck up for him by repeating President Putin's opinion of him as "a top specialist in his field". Another stuck his neck out by alleging that all international organisations know Melnikov as "a top-notch professional". He doesn't sound that bad, so why all the fuss? Sadly, there was a certain reluctance in voicing opinions openly on this matter, perhaps once the president's own views had been expressed, and the original committee vote was done by secret ballot. So much for parliamentary transparency - before clamouring about central-bank transparency, perhaps parliaments ought first to address their own shortcomings.
TOO MUCH PARLIAMENTARY SCRUTINY?
Parliamentary involvement in
the appointment process is a hot topic in the UK too. The Bank
of England has published a report in its latest Quarterly Bulletin,
which apparently casts doubt on the extent to which the current
level of scrutiny that exists in the UK is necessary. Its revealingly
caustic conclusion is that "there is no requirement for a
parliamentary check on this appointments procedure". Although
the report concedes that "in a parliamentary democracy...an
important method [of exercising scrutiny] will be through the
appearance of central bankers in front of parliament or its representatives",
it goes on to suggest that there is no correlation between the
number of parliamentary appearances and central bank independence
- the Bundesbank is cited as one central bank with a high degree
of independence and a low level of scrutiny, but this relationship
is uncommon. It would be interesting to know who or what prompted
the Bank to commission this report - presumably the fact that
some members recently appointed have been subjected to what some
in the Bank might consider to be excessive scrutiny?
http://www.bankofengland.co.uk/qb/qb020302.pdf
NORGES BANK DOES WELL
Further dissatisfaction with
parliaments, relationship with central banks is manifested in
inflation-targeting guru Lars Svensson's recent report on Norway's
central bank. He congratulates Norges Bank on its first-class
practice of inflation targeting, although the bank's legal framework
leaves quite a lot to be desired, being "among the weakest
in the world". He advocates reform of the central bank law
to give the bank formal operational independence, as in this respect
"Norway is far behind other countries". The changes
he recommends should make the bank "a clear world leader
in inflation targeting". To read more click here:
http://www.princeton.edu/~svensson/norway/nbwpr.htm
ICELAND'S GOVERNOR GOES
One of the three governors of the Central Bank of Iceland, Finnur Ingólfsson, has jumped ship in favour of an insurance company. He resigned from the central bank having accepted a job as CEO of VIS Ltd. In his place, the prime minister has appointed Ingimundur Fridriksson for an indefinite period, not to exceed one year, beginning from October 1. 52 years old, he is married with four children, and first joined the central bank straight after receiving his MA in economics in 1975, where he has spent most of his career aside from a couple of two-year stints at the IMF in Washington. For the last eight years he has been assistant governor and is now one of the three governors, of whom one, Birgir Ísleifur Gunnarsson, acts as chairman.
© 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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