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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 September 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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AFTER CROCKETT

Since Andrew Crockett, general manager of the BIS, announced he would be saying his goodbyes to the BIS next March, the pressure is on to go through the motions of seeking a suitable replacement. The board of governors has now named a committee which will dedicate itself to this exacting task, to be chaired by Nout Wellink of the Netherlands Bank. Wellink played down the challenges involved: "We are simply looking for the best candidate in a broad field." But quite apart from filling the shoes of the man who is credited with transforming the BIS from a euro-centric clique to one with claims to have a global reach, the criteria stipulated are enough to deter any other than the most dedicated applicants.

The right candidate will have "a broad profile of the qualities needed for success in a post that calls on diplomatic as well as technical skills and "a track record of proven independence and personal integrity." He or she will also have "outstanding management skills" and "high stature in the international financial community" as well as "a strong background in dealing with issues faced by the central bank community". Plenty of those floating around I'm sure.

The problem for would-be candidates is this: how to find out whether the successor has already been chosen in secret. If you are a well-known central banker and you fancy your chances, do you just send in your CV to Wellink? If you then find out the successor has already been selected, and you get a polite letter saying your candidacy has been unsuccessful, you lose face. You feel put out. Yet for all the BIS's efforts to prove it has moved into the 21st century, they will have their work cut out persuading people that they don't have a successor in mind, even if nothing is in writing. Newsmakers would favour a third world candidate like, say, Fraga of Brazil or Ortiz of Mexico, but with a search committee drawn entirely from the G10, that is unlikely.

Advice to candidates: try calling privately one of the other members, Antonio Fazio, Roger W Ferguson, Jean-Pierre Roth, Jean-Claude Trichet or Yutaka Yamaguchi. If they take your call, you may be in with a chance.
http://www.bis.org/press/p020910.htm

ARGENTINA'S MERRY-GO-ROUND

People must be getting quite fed up with trying to keep up with the state of play of the merry-go-round that is the governorship of Argentina's central bank. In case you were getting confused, Aldo Pignanelli is currently the big man at the central bank, having replaced Mario Blejer who resigned in indignation in June. But Pignanelli is not faring much better. It's the same old story: disagreements over how to run monetary policy and lift the partial deposit freeze. At last count, Argentina's economy minister Lavagna was keen to swap Pignanelli with a rather more docile governor of his own choice.

He recently asked Amadeo Vazquez if he wouldn't mind running the central bank, as he is currently in charge of BBVA Banco Frances and is intimate with some of the largest companies in Argentina. Lavagna thinks that Pignanelli doesn't care enough about the productive sector, and is only watching out for the banks, but he hopes Vazquez would do things differently. Let's hope Pignanelli is capable of keeping his end up he seems to need encouragement from President Duhalde not to resign as his resignation would only damage the government's credibility and make the IMF even more reluctant to lend the money that Argentina so desperately wants.

CAMBRIDGE PUNTERS...

While all the publicity focussed on the recent central bank meeting at Jackson Hole, Wyoming, in fact only a handful of foreign central bankers attended, whereas the other conference taking place at the same time, at Cambridge, UK, attracted 150 central bankers (half of them female) including governors, from 80 countries. This was the annual residential Central Banking Training Course/Seminar Series run for the past five years by Central Banking Publications. Seven seminars were organised over a two-week period in the beautiful setting of Christ's College. The sun shone, the birds twittered and the 500-year old college looked its best for the occasion, with immaculate courts and their green English lawns.

One highlight of the serious part of the meeting was the presentation by Charles Goodhart, who also served as general course adviser. Charles had the delegates on the edge of their seats for his four-hour marathon interactive group therapy session on "Performance Measurement" for central bankers.

On the lighter side was the spontaneous punting regatta organised by Newsmakers, where delegates were wafted in punts along the "Backs", viewing the great colleges glide by: St John's, Trinity, King's...

...AND JACKSON HOLERS

Talking of Jackson Hole, perhaps the organisers, the Kansas City Fed, would consider making that too a mite more interactive? At least some people there were miffed that discussion was, shall we say, hardly encouraged after the speech by Alan Greenspan on asset bubbles. It was all stage managed, they say: stand up, bow, and be quiet.

CONTENTIOUS COINS

Just when the ECB might have been patting itself on the back for so flawlessly executing the introduction of notes and coins, this had to go and happen. A gang of pesky scientists decided to throw a tantrum about certain rather unfortunate properties of the euro coins. It has been discovered that they release up to 320 times the amount of nickel that the EU's very own regulations warn cause nasty rashes on people who are allergic to nickel (which is around one in ten people). Actually the euro coins contain less nickel than many of the other coins previously issued by the national central banks the problem lies in their particular makeup.

The handsome two-tone composition of the one and two euro coins is such that when in contact with human sweat, they become like a tiny little battery, as the two alloys react to trigger a current of about 40 milliwatts to pulse through the coins, releasing nickel ions onto skin which causes itching, reddening and blistering. This should not be a problem for most, but those who handle the coins a lot, like cashiers or bus conductors, might have cause for concern. This is not news the ECB will be itching to hear, but if it doesn't do anything about it, it may prove allergic to the consequences. For the original article exposing this problem: http://www.nature.com/nsu/020909/020909-9.html

This glitch in the euro coins has not deterred enthusiasts in Britain from snapping up a limited prototype series of British euro coins although it may have to do with the fact they are made of gold and silver, not base alloys. The coins were minted to persuade stubborn Brits that their own beloved coins would not lose their appeal or individuality should the euro ever replace the noble pound. For more information see:
http://www.lbmrc.co.uk/euro_british_coins.htm

DISINTEGRATING NOTES

Meanwhile, the Samoan central bank has encountered a rather different, and graver, problem with its currency. Rumour has it that its notes are not coping very well with the harsh tropical conditions, and are prone to disintegrating with scant encouragement. Samoa's central bank has reacted to this nuisance with admirable pragmatism. Believing that if the notes are handled with a little more love and respect, it is offering wallets at the bargain price of 25 US cents to put a stop to the dissolution of its notes. Wallets are not common fare in Samoa, so this might just do the trick.

LARGE RELIEF

And not before time too! For a while it seemed like the Treasury had forgotten about its responsibilities to appoint a successor to David Clementi, the now ex-deputy governor of the Bank of England. But all's well, Sir Andrew Large has been selected to take his place, and a fine job he will surely do too. He certainly has many of the right credentials: now 60, he has been deputy chairman of Barclays since 1998, before which he was chairman of the Securities and Investments Board (the predecessor of the Financial Services Authority) for six years, already with a good twenty years in investment banking under his belt. Nice to have a City chap batting for the Bank, even if his economics may be a bit rusty he read economics at Cambridge in the 1960s when it was still dominated by the Keynesians.

Have the Bank and Sir Andrew been miffed by the inept manner of his appointment? We all know our Chancellor by now. He's thinking: "If I have to wait so long to get Tony Blair out of the way and be prime minister, why shouldn't I make others wait for their moment of glory?"

Sir Howard Davies, head of the FSA, put it beautifully: "As I am leaving in January 2004 I expect my successor will be announced some time in February 2005." With remarks like that, I suppose we can safely assume that Davies is no longer a candidate for governor of the Bank, the vacancy for which is coming up next summer which narrows the field down to two. There is Mervyn King, the other deputy governor, and another whose name temporarily escapes me...

For Large the new job actually represents a pay rise. At Barclays, on a three-day week, he was palmed off with just £175,000, while Clementi was getting £208,000 when he left the Bank. But that can't be his motive, surely. One euro-sceptic made a particularly cruel remark on learning of the appointment: "Finally, a half-convincing argument for joining the single currency. We've run out of people to run British monetary policy."

Newsmakers looks forward to Large proving such sniping wrong. There is one comfort: Sir Andrew didn't accept the job in order to get the traditional knighthood. Since Englishmen at that level only take on burdensome and dangerous roles to get a "gong" (honour from the Queen), Newsmakers wonders what makes him tick...

BANK BURGLAR BAGGED

The game is up for the double-crossing security guard who facilitated the pillaging of the West African central bank's vaults. Sia Popo Prosper assisted in the snatching of some $3 million from the Ivory Coast branch of the BCEAO, a lightening operation which took less than 13 minutes. He was apprehended in Ouagadougou in Burkina Faso earlier this week after the freebooters fled the country with their ill-gotten gains. But questioning has yielded little of any use he insists he was the only insider involved and resolutely refuses to betray where they stashed the cash.

Readers may be interested to hear that this is not the first time that the security officer in the Ivory Coast's central bank has been up to no good. In another inspired creation of those Nigerian "419" scamsters (see previous issue of Newsmakers), a certain Ibrahim Musa claims to have been the chief security officer of the "Central Bank of the Ivory Coast" compelled also to leave the country, but this time because of the military coup in 1999. He managed to salvage no less than $15m (Prosper's loot seems meagre by comparison) in a couple of boxes which he declared as "photographic material to avoid the Security Company from raising eyebrows and bad intention over the boxes". He is offering 20% if you can help him shift it to a safe place. See for yourself:
http://members.tripod.com/aspaaus/ibrahimmusa.htm

MARCHENKO "NOT GOING ANYWHERE"

The youthful chairman of the National Bank of Kazakhstan, Grigoriy Marchenko, has reacted angrily to suggestions that he might be abandoning his countrymen. He took the job in 1999 when he was just 39, and says he has no intention of bowing out just yet "I am not going anywhere", he snapped. He is exasperated by the constantly wagging tongues making unsubstantiated allegations about his supposed designs to defect to the Central Bank of Russia: "Over the past one-and-a-half months, there has been a lot of talk about me resigning and moving to Moscow in order to work there. Some have written: he has already bought a flat in Moscow. Others say: no, he has got a detached house in the environs of Moscow. His family left a long time ago". But he fervidly maintains, "I do not have citizenship of any other country or assets, property or a bank account abroad". Just because he goes abroad, he reasons, why should people leap to the conclusion that he plans to move there permanently? After all, when he visited China, did this mean that he was buying a flat in Beijing?

REDDY'S REPLACEMENT

At the Reserve Bank of India the replacement of the deputy governor went rather more smoothly. Since Yaga Reddy exited the Reserve Bank to join the IMF, a number of candidates vied to take on the job. Rakesh Mohan, formerly India's chief economic adviser, has now been selected to replace him. At the same time, the government cleared the extension of RBI governor Bimal Jalan's term by another two years. 54-year-old Mohan's term lasts three years, and he will be in charge of monetary policy, external investments and operations, internal debt management and economic analysis. Before taking on the job, Princeton-educated Mohan was director and chief executive of the Delhi-based Indian Council for Research in International Economic Relations (ICRIER). See the RBI's website for more information:
http://www.rbi.org.in/index.dll/31426?OpenStory?fromdate=09/09/02&todate=09/09/02&s1secid=1s2secid=0&secid=4/1/0&archivemode=0

DOOKERAN GETS POLITICAL

Winston Dookeran, whose term as governor of the central bank in Trinidad and Tobago expired recently, has followed the path of many an ex-central banker. Not reappointed as governor of the central bank by the current government, he is now to stand in the forthcoming general elections for the party in opposition. He was formerly finance minister in a 1986-91 administration, and will be contesting a traditionally "safe" seat. Should his party, United National Congress, emerge victorious, it is reckoned that Dookeran will become deputy political leader. The UNC leader assures that Dookeran will be "an asset to the party", benefiting from his "international reputation".

2 September 2002

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By Benedict Mander
Central Banking Publications
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BRASH GIVES THUMBS-UP TO NEW RBNZ GOVERNOR

The hunt is over: the non-executive directors of the Reserve Bank of New Zealand have now settled on a new governor, Dr Alan Bollard. The search commenced after Don Brash's exit from the bank to become finance spokesman for the opposition National Party. The government has given the all clear to Bollard's nomination, and he also has the blessing of his predecessor Brash, who judges him to be "an experienced and competent economist who will handle the role well."

Bollard's nomination is notable for the fact that he is currently a member of the government, and has been secretary to the treasury since 1998. One or two eyebrows have been raised on account of this, but finance minister Michael Cullen vigorously denies that the appointment is in any way partial. Don Brash assured Newsmakers that the system does not allow politicians to meddle, and explained that there is "an internationally unusual level of protection of the appointment process from political interference". He points out that the system is unusual in that although the finance minister makes the appointment, he can only appoint somebody who has been recommended to him as governor by the board of the Reserve Bank: "In my view, this is a very good procedure, and provides a high degree of protection from political interference."

Something of a dark horse, 51-year-old Bollard has elbowed past the likes of current acting governor, Rod Carr, and former deputy governors Peter Nicholl (now governor of the central bank in Bosnia) and Murray Sherwin in fact Brash thinks there were some 40 applicants to the position. He said that the board was "in the fortunate position of having three or four strong candidates for the position, any one of whom would have made an admirable governor."

It has been suggested that Bollard's appointment heralds a significant change in relationships between the central bank and the government, which have in the past hit the headlines for the frosty exchanges between governor and finance minister. Brash confided in me on this matter: "Actually, my own relationship with the minister was not strained when I was governor, though clearly since I have become the opposition finance spokesman our relationship has got a bit more tense!"

However there is no tension in Bollard's relationship with Cullen, who finds Bollard "always a pleasure to work with". Cullen has adequately expressed his approval of the selection: "Although I am obviously very pleased that the board has chosen someone of such high ability, it was with mixed feelings that I accepted their recommendation because it means I will lose Dr Bollard as secretary to the treasury". Cullen has also praised Bollard for the "enormously successful way in which he changed the culture of the Treasury into a "more open and outward looking organisation."

Although Bollard has not had any previous central banking experience, Brash thinks he has had "a great deal of other relevant experience". Before joining the treasury, Bollard was chairman of the competition regulator, the New Zealand Commerce Commission, from 1994, before which he was director of the New Zealand Institute of Economic Research for seven years. He has also worked as an economist in a variety of positions in Britain and the South Pacific. In sum, Brash fully endorses the appointment: "He has strong economics, strong management skills, and, I understand (though I have not heard him give a public speech) strong communication skills."

But it's not over yet: confirmation of Bollard's appointment is conditional on the satisfactory negotiation of a new Policy Targets Agreement since the government is keen for New Zealand's monetary policy to mimic that of Australia more closely. However Cullen's attitude is sanguine: "I am confident Dr Bollard and I will be able to negotiate a PTA which is satisfactory to each of us and to the broader financial and business community and which will serve New Zealand well." Bollard's take was more measured, perhaps in an attempt to accustom himself to his probable new role: "Until the Policy Targets Agreement is finalised, and my employment contract is signed, it would be inappropriate for me to make any further comment on any matter relating to the Reserve Bank governor position."

SPITTING CONTEST IN THREADNEEDLE STREET

Meanwhile, the hunt for a suitable successor to David Clementi, the deputy governor of the Bank of England who quits his job today, continues. The Treasury has come under fierce attack from the party in opposition, the Conservatives. Shadow chancellor Michael Howard seized the moment to deride his opposite number Gordon Brown, who is currently holidaying in Cape Cod, attributing "this lamentable failure" to appoint Clementi's successor to "sheer incompetence".

What's up? Many of the Treasury's favourite sons from the City have turned down the job. Some say high fliers are turning their noses up at the paltry pay Clementi got £207,083 last year. But who worth his or her salt would leave a City position to take a job as so-called deputy to an unknown boss? Eddie George retires in less than 12 months and the new deputy certainly could not hope to be promoted to the governorship; even a seat on the MPC might not compensate for the aggravation of being No 2 (or is it No 3?) to a governor you might not get on with.

Another question is whether the Treasury is consulting Eddie George himself, in any more than a very perfunctory sense. After all, he knows more about what qualities are needed in the job than anybody else. And surely the new person has to be acceptable to the governor. The most qualified person would be Ian Plenderleith, who has just retired as an executive director (one previous deputy governor was called back twice and ended up with three pensions!). But the Treasury took their time once before when reappointing Eddie George for a second term and one has the horrible feeling that they are gloating over this demonstration of their powers.

To fill the gap, the Bank can call on the very intelligent Alastair Clark, an executive director, and the obvious internal candidate, to ensure that the deputy's responsibilities as minder of the stability of the financial system remain attended. There is certainly little concern in Threadneedle Street over the MPC meeting next week, which has operated before without nine members, most recently when Marion Bell and Paul Tucker joined the committee this June. In the unlikely event that the vote is tied (the City expects no change in interest rates) the governor gets a second vote.

Although unrelated to central banking, it may be appropriate to recall the rude remark that a US vice-president called John Nance Garner once said of his job: "This office isn't worth a pitcher of warm spit". Everybody knows that there is absolutely no need for two deputy governors and that the Labour government's decision to split the job was a silly mistake. But now it's written into the legislation. Please Gordon, stop spitting!

Clementi looks set to become the next non-executive chairman of Prudential, the UK's second-biggest life assurer.

GREENSPAN AT JACKSON HOLE

Central bankers from around the world travelled to Jackson Hole, Wyoming for the annual meeting organised by the Federal Reserve Bank of Kansas City on Friday. Alan Greenspan, defending his decision not to prick the asset bubble of the 1990s, told the assembled company that central banks can't deflate stock-market "bubbles" without causing severe economic harm. "Nothing short of a sharp increase in short-term rates that engenders a significant economic retrenchment is sufficient to check a nascent bubble", Greenspan told the gathering. "The notion that a well-timed incremental tightening could have been calibrated to prevent the late-1990s bubble is almost surely an illusion," he said.

Greenspan said the Fed faced at least two problems in dealing with the bubble on Wall Street. First, "it was very difficult to definitively identify a bubble until after the fact - that is, when its bursting confirmed its existence." Second, Greenspan said the Fed's experience over the past 15 years suggested that gradual interest-rate increases tend to generate later increases in stock prices. "For example, stock prices rose following the completion of the more than 300-basis-point rise in the federal-funds rate in the 12 months ending in February 1989", Greenspan said. "And during the year beginning in February 1994, the Federal Reserve raised the federal-funds target 300 basis points. Stock prices initially flattened, but as soon as that round of tightening was completed, they resumed their marked upward advance," he said.

Accordingly, Greenspan said, Fed policymakers had no way to deflate the stock bubble without raising interest rates sharply and risking an economic collapse. "It seems reasonable to generalize from our recent experience that no low-risk, low-cost incremental monetary tightening exists that can reliably deflate a bubble. But is there some policy that can at least limit the size of a bubble and, hence, its destructive fallout? From the evidence to date, the answer appears to be no," Greenspan said.

SABIRIN ACQUITTED

There is a pervasive mood of elation throughout Bank Indonesia now that the country's high court has at last cleared governor Sjaril Sabirin of corruption and overturned his three-year prison term after he was convicted in March. He had been accused of illegally siphoning off $80 million of central bank funds to finance the 1999 election campaign of former President Habibie's Golkar party. Sabirin appealed against the ruling and has now been acquitted. The District Court of Central Jakarta has pledged "to rehabilitate and restore the good name of the defendant". Sabirin said: "This is justice from God. From the beginning I said I was not guilty and had not made any mistakes." Convinced of his innocence, Sabirin had refused to stand down as governor, and received the staunch backing of all his colleagues at the central bank. Sabirin said after attending prayers in a mosque on the grounds of the central bank, "From me and my family, and for the whole central bank family, we are grateful for the long-awaited decision." See the press release on Bank Indonesia's website:
http://www.bi.go.id/bank_indonesia_english/main/press_releases/pers_detail.asp?id=1547

SPOOKS FROM HUNGARY'S PAST

The past of chairman of the National Bank of Hungary, Zsigmond Jarai, has returned to haunt him. Since Hungary's new prime minister, Peter Medgyessy, admitted to working for the secret service 20 years ago during the communist regime, a witch hunt has been set in motion to hunt down other ghosts thought laid to rest. The witch hunters have claimed that Jarai was also implicated in similar affairs. He recently owned that the secret service attempted to recruit him in the 1980s, but said that he repudiated the offer and was not a member of the communist party.

But he did not escape participation entirely, and was forced to send back reports when abroad when he was involved in preparing the reopening of the Budapest Stock Exchange in the 1980s. "Under pressure I signed a statement that I will send to the Interior Ministry the reports I wrote on the foreign assessment of the country's economy from my trips abroad, but this activity is acceptable even today", Jarai said. He made these remarks after protesting violently against publication of his personal data. He said that the investigation was unlawful and unconstitutional, and was only designed to divert attention from Medgyessy's screening: "The operation of this committee can be regarded as a political circus which aims to smoothly settle the D-209 [Medgyessy] affair, rather than to be a real unveiling of the past."

A GRUESOME FATE

Fresh evidence has surfaced over the murky episode in which the former governor of the National Bank of Ukraine, Vadym Hetman, was brutally shot dead in 1998. Former prime minister Pavlo Lazarenko allegedly commissioned the murder of Hetman -- considered a level-headed, elder statesmen of Ukrainian politics -- for $850,000.

Hit man Serhiy Kulyev has recently given evidence to a court describing the sordid details of this infamous incident. He told how his superiors in the Luhansk-Donetsk crime ring assuaged his fears by telling him "not to get too concerned. Pasha [a diminutive] Lazarenko would cover them". He described the scene of the murder: "When he got into the lift [of his apartment], I got down from the stairs and followed him. I put one foot in the lift and started shooting six times. First in the torso area. When he fell to the floor of the lift, I delivered the final shot to the head."

ONE BORN EVERY MINUTE

The South African Reserve Bank has succeeded in beating off an impostor website. Bank officials discovered a phoney website registered as http://www.sarb.org.za/ (have a look, the remains are still there) masquerading as their own, acting as a prop to further criminal causes. In another attempt by those nefarious Nigerian "419" (the number of the law banning such activities) advance-fee scamsters to relieve gullible foreigners of their money, this sham website was established to convince victims of their legitimacy and then bamboozle them into handing over their cash of their own free will.

The tactic is to pledge undreamt riches in return for assistance in shifting enormous sums of money out of African countries; some people, amusingly, fall for this ploy. In this latest case, a number of British and US citizens were fleeced of millions of rands in the belief that they were assisting in the illegal removal of large amounts of money from the bank's coffers. Alas, the scamsters were busted, so will no longer be able to continue their noble quest to rid the world of fools.

GRAMLICH UNDERGOES TREATMENT

Edward Gramlich, who sits on the Fed board and the FOMC, is being treated for leukaemia. Thankfully it is a form of the disease that can be treated successfully and, according to the Fed, "his doctors believe his prognosis is good." He knew about his condition more precisely, chronic lymphocytic leukaemia, which of the four common forms of the illness is the most treatable before he became a board member in November 1997, but it had not required treatment at that stage. It was only more recently that his health deteriorated to a stage where his doctor advised treatment. His chemotherapy began last Monday, and although he will have to take time off for treatment, the Fed says that "he will continue to fulfil his duties as a board member" and he is expected to participate in the next FOMC's next meeting on 24 September.

SPLITTING HAIRS

Jealousy will get you nowhere. Still, that hasn't stopped a rather small-minded law firm in Atlanta from kicking up a fuss over Alan Greenspan's recent award of a knighthood. The Southeastern Legal Foundation thought it would be a good idea to complain that this contravenes a provision of the US Constitution that forbids holders of an office of profit to accept a title from any "King, Prince or foreign state"; therefore Mr Greenspan must seek Congress's approval first. Let them complain, says the Fed. If you're going to create a kafuffle over this kind of thing, at least do your research properly, for heaven's sake. The Fed retorted that federal employees most certainly can receive honours without congressional approval, thanks to a Justice Department ruling on a 1966 law. So there.

THE GREAT BANK ROBBERY

The Ivory Coast branch of the Central Bank of West African States has been the target of an expertly executed armed robbery. A band of seasoned crooks plundered the bank's coffers in broad daylight: at high noon, a bunch of suit-clad criminals brazenly drove into the bank's grounds, pilfered 15 bags stuffed with notes, and scarpered. The booty amounted to some 2.6bn CFA francs ($3.8m), and bank officials are asking questions. They suspect treachery in the ranks: the local press claims it was an inside job, performed with the help of a perfidious security guard. Police say that security cameras had been tampered with before the robbery, and the guard is reported to have been seen bundling into the back of the robbers, getaway vehicle. With luck, they won't get far, as the country's borders have been sealed off.

DIAMONDS AREN'T FOR ALWEENDO

Tom Alweendo, the governor of the Bank of Namibia, has been the victim of underhand measures by a cowboy diamond company, which used his name against his wishes to boost its prestige. Eager to be connected with the central banker's good name, in the hope that perhaps it might benefit from his credibility merely by association, Trade Line Namibia decided to add Alweendo to its list of directors even though he had expressly stated he was not willing to be associated with this company, precisely in order to avoid any controversy.

But when the company was recently caught up in legal wrangling, it transpired that Mr Alweendo was listed in court papers as a 10% shareholder of which the central bank governor had been blissfully unaware. The company had had the courtesy to ask him initially, but Alweendo declined the offer: "I said I'll think about it. Then I wrote to them saying I'm not interested in becoming a shareholder in that." However caution was thrown to the wind and Trade Line Namibia clearly decided they might as well add his name anyway. This may yet prove to have been ill-advised.

BELT TIGHTENING

The Philippines, central bank governor, Rafael Buenaventura, has received a severe telling off. Administrative charges have been filed against him and the heads of 14 other government-owned corporations and financial institutions for allegedly failing to chop back his salary to under 1.8 million pesos ($34,756). President Gloria Arroyo ordered this in June last year, and if found guilty Buenaventura risks either being suspended for six months or even "discharged from public service". He has been summoned to appear at a court hearing where he must explain himself, although he has told reporters that he has already done so, and that "we understand they are satisfied." Let's hope so!

DIRTY MONEY

Paul O,Neil, US Treasury Secretary, was recently rapped on the knuckles for some throwaway line about the futility of lending money to Brazil as it would just wind up in Swiss bank accounts. Although this comment was denounced as grossly unfair, he was not too wide of the mark. In neighbouring Argentina, Carlos Menem, the alternately maligned and praised ex-president, and now wannabe successor to current president Eduardo Duhalde, is accused of precisely this. This is an ongoing saga: it was confirmed last October that two Swiss bank accounts were linked to Menem. But now the affair has boiled over again as Duhalde Menem's long-time rival for power of Argentina's Peronist party has requested a meeting with his Swiss counterpart Kaspar Villiger to discuss these accounts. The saga continues...

CLEAN MONEY

When is it legal to launder money? In fact, in some places, central banks positively encourage this. In India and other developing countries where note deterioration outstrips the central bank's ability to replace them notes get so grubby so quickly that the central bank doesn't know what to do with itself. "The soiled notes are piling up and our capacity to handle them is limited... It's like a traffic jam," according to the head of the currency management department in the central bank's Bombay HQ. Consequently, a whole new profession has emerged to tackle this problem. Entrepreneurial types buy up low denomination notes, so battered that no one but beggars will accept them, at cut-price value, spruce them up with the help of a mixture of soap, water, tape and note-restoring know-how, and then sell them back to the central bank at face value. This is big business in India, with the more skilful launderers exchanging as many as 10,000 bills in a day. A classic case of supply meeting demand.

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

Benedict Mander
Email: bmander@centralbanking.co.uk
Central Banking Publications Ltd
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We invite you to contact our trading desk for quotes and purchase information. 1-800-869-5115 00-800-8720-8720 6:00am to 6:00pm MtnTime; Mon-Fri admin@usagold.com

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