The New Face of Central Banks.

[Dinar_o'saurs]

06/09/2013

Paula Supachai *

 

The changing of the guard going on in full swing in many of the leading central banks around the world. Now Haruhiko Kuroda was installed as governor of the Bank of Japan, which faces the daunting task of ending two decades of stagnation. Mark Carney, the current governor of the Bank of Canada, which is scheduled to assume the post of governor of the Bank of England in July, already begun to prove its presence in British monetary policy discussions. In the United States, began the end of the mandate expected Ben Bernanke as head of the Federal Reserve Bank in January already calls for the launch of speculation about his successor.

The euro area and China from the enduring few among the leading economies in the world. But this does not necessarily mean stability and consistency. The Mario Draghi took over the ECB to barely one year so far, while the People's Bank of China Governor Zhou Xiaochuan فكاد be replaced when they reached the age of retirement in February.

Twenty years ago, such developments were to receive attention mostly between bankers and businessmen only. But since the global financial crisis, the need to revive and sustain economic growth in the United States, the United Kingdom, Japan and avoid a financial meltdown in the euro zone has prompted major central banks to adopt greater openness and pursuing monetary policies more aggressive and force, including This unconventional measures such as quantitative easing. As a result of this, a number of central bankers whose names became known even in homes; Some of them even fired them tabloids pamper names, such as 'Super Mario' Draghi.

As this new visibility forced some central bankers to re-evaluate the decision-making processes that adopt. In Japan, strangers recently won a rare opportunity to take a quick look at the activities of the Bank of Japan when it was leaked a minutes of meetings. Likewise, it was published the minutes of the meeting of the Federal Reserve Bank in March / March to determine the interest rate of unintentional one day before a hundred people, including managers bankers, executives, and assistants in Congress, and lobbyists banking, provoked questions about how controlled by the bank in the issue of disclosure of confidential information.

Indeed, the U.S. Federal Reserve Bank was subject to an increasing amount of scrutiny since 2008, when it paid nominal interest rates near zero to become the first central bank to adopt quantitative easing. In an effort to reduce borrowing costs, the Fed bought long-term assets in the market, to inject liquidity into the financial system. Since that time, built the Bank of England and the European Central Bank similar measures.

In early April / April, the Bank of Japan announced plans to launch a bond-buying program by far the most power, and promised to pump $ 1.4 trillion in the arteries of the economy over the next two years in order to meet the inflation target of 2%. This is the doping-backed monetary policy, in the eyes of opponents of money creation through the induction of inflation, this is tantamount to playing with fire. But for Japan, which has been struggling downturn in a generation, it is worth the risk. It remains to be seen whether Kuroda this attack may succeed in promoting domestic consumption and investment.

The non-traditional measures form part of a broader shift occurred in the process of making monetary policy. In addition to show greater courage and expansion, this process has become increasingly intertwined with fiscal policy. We can see this with the greatest clarity in Japan, where monetary policy is a central element in the strategy of Prime Minister Shinzo Abe, economic, dubbed named «Abinomax», which implies cooperation between the government and the central bank.

But this leads to undermine the independence of the central bank when the level reaches imposes de facto subordination of unelected technocrats staff to elected politicians? Some may argue that Japan is an exceptional case, where required under zero interest rates imposed on the nominal deviation Finally, after a long wait for traditional measures. But in Europe, the German Central Bank President Jens Weidmann to criticism of the European Central Bank that it has exceeded its powers to the program «the explicit cash transactions, which aims Draghi from which to fulfill his pledge to ensure the survival of the euro.

As a result of this, the questions about the role of monetary policy and the independence and accountability of central banks, which were once limited to the elite academic discussions, has become one of the fixed elements in large-scale political debates. But instead of trying to define one approach, must Governors of the central banks that target the development of an individual approach to conservative monetary policy framework, which revolve around price stability and independence.

For example, stipulates the powers of the Fed to price stability could be associated clearly with the active support of the GDP growth and employment; For the Bank of England and the European Central Bank, this may be a condition for achieving the broader goal of sustainable growth and employment. As long as politicians remain committed to non-interference rule, at least publicly will be considered to central banks being entities that are not constrained by political interests.

Indeed, the Bank of Japan, by showing that the creation of money on this strong aggressive as a legitimate approach in the fight against deflation, breaking the pact was characterized by holiness previously. At the same time, the Bank of Japan took the unprecedented step in the integration of monetary policy in a comprehensive economic strategy based on coordination between the various political fields and institutions associated with them.

This approach has proved its effectiveness in developing integrated, where a close correlation between the real economy and the financial sector, so as to ensure the implementation of policies in a timely manner and on a regular basis, while preventing negative repercussions. This is not the kind of coordination infringe on the independence of the central bank, but as far as multilateral cooperation is undermining the sovereignty of the participating countries.

While left for us to see the effect «Alabinomax» Japan's economy, the impact on the debates about monetary policy and the relationship between central banks and governments have already become clear. We can only hope that Carney exhibits the same path in challenging the conventional wisdom in the Bank of England. Perhaps a new era of active monetary policy and varied just starting out, what it involves this potential benefits for all.

 

• Director of Research for International Economics at Chatham House

 

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