New pressures on central banks and the Fed
As central banks come closer to the commercial sector, exercising powers such as the granting and withdrawal of licenses, and become more involved in decisions determining the livelihood of individuals, there must be a growing risk of “crony capitalism” at best and outright corruption at worst.
Corruption can take many forms – many of which are hard to detect or prove. The generation of central bankers that believed good economics lay at the heart of what they had to do may never have learnt the different kind of toughness, discipline and professionalism needed.
With sufficient training, they can resist undue influence of the financial sector while ensuring they are closely in touch with markets. But it won’t be just a matter of common sense; procedures, guidelines, reporting requirements, garden leave rules and much else should be reviewed and new rules strictly enforced. There is a clear line, but it is a difficult one to draw and to police. Without a clear moral compass they will be lost.
And the Federal Reserve?
Has the Fed lived up to its responsibilities? Some say it should act as central banker to the world.
Has it even behaved immorally in declining to do so? If events have placed it in that role, how should it alter its behaviour if at all?
The answer is it has not been immoral. Central bankers have to respect the constitution of their countries. That is a moral as well as legal duty. The Fed is the central bank of the United States, accountable to the American public and the US Congress only.
Yet that clear constitutional obligation should not prevent its leaders from criticising the international monetary system. It should not stop them from listening carefully to central bankers from around the world whose nations may suffer needless damage because of the outdated rules of the system. It does not excuse them from failing to reflect on the fault-lines in the system and the need to shift the boundaries of contemporary central banking.
It is a question of degree. Central bankers, like doctors, teachers, academics, soldiers, research scientists, and other professionals, are occasionally faced with the need to take very difficult decisions. Like conscientious members of any profession; the conscientious central banker will do more than “follow orders”, or “apply the rules” still less will he or she blindly follow the wishes of governments. To help them to decide what to do – and whether to resign under pressure to do the wrong thing – they will place their particular dilemmas within a broader framework.
That will often incorporate a moral dimension. I have to report that many thoughtful and responsible central bankers from emerging markets do not feel the Fed has done enough to listen to them and their reasoned criticisms of he system. Neither Ben Bernanke nor his successor Janet Yellen have, from this perspective, made the effort that they can and should make to take account of the feedback from other central banks.
Beware crony capitalism
New pressures on central banks and the Fed
As central banks come closer to the commercial sector, exercising powers such as the granting and withdrawal of licenses, and become more involved in decisions determining the livelihood of individuals, there must be a growing risk of “crony capitalism” at best and outright corruption at worst.
Corruption can take many forms – many of which are hard to detect or prove. The generation of central bankers that believed good economics lay at the heart of what they had to do may never have learnt the different kind of toughness, discipline and professionalism needed.
With sufficient training, they can resist undue influence of the financial sector while ensuring they are closely in touch with markets. But it won’t be just a matter of common sense; procedures, guidelines, reporting requirements, garden leave rules and much else should be reviewed and new rules strictly enforced. There is a clear line, but it is a difficult one to draw and to police. Without a clear moral compass they will be lost.
And the Federal Reserve?
Has the Fed lived up to its responsibilities? Some say it should act as central banker to the world.
Has it even behaved immorally in declining to do so? If events have placed it in that role, how should it alter its behaviour if at all?
The answer is it has not been immoral. Central bankers have to respect the constitution of their countries. That is a moral as well as legal duty. The Fed is the central bank of the United States, accountable to the American public and the US Congress only.
Yet that clear constitutional obligation should not prevent its leaders from criticising the international monetary system. It should not stop them from listening carefully to central bankers from around the world whose nations may suffer needless damage because of the outdated rules of the system. It does not excuse them from failing to reflect on the fault-lines in the system and the need to shift the boundaries of contemporary central banking.
It is a question of degree. Central bankers, like doctors, teachers, academics, soldiers, research scientists, and other professionals, are occasionally faced with the need to take very difficult decisions. Like conscientious members of any profession; the conscientious central banker will do more than “follow orders”, or “apply the rules” still less will he or she blindly follow the wishes of governments. To help them to decide what to do – and whether to resign under pressure to do the wrong thing – they will place their particular dilemmas within a broader framework.
That will often incorporate a moral dimension. I have to report that many thoughtful and responsible central bankers from emerging markets do not feel the Fed has done enough to listen to them and their reasoned criticisms of he system. Neither Ben Bernanke nor his successor Janet Yellen have, from this perspective, made the effort that they can and should make to take account of the feedback from other central banks.
Written on May 28, 2014 at 11:04 am, by robert
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