Special Cases

Andrea Fiano's monthly letter to you, the reader.

OCTOBER 2019 | VOL. 33 NO. 9

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Our annual “report cards” grading the world’s central bank governors is growing in scope, covering more countries each year. It is also growing in relevance. Debate on the role and mandate of central banks has become more central to discussions on economic growth and the role of fiscal policy in both advanced and emerging economies.

This year in particular, with widespread cuts in interest rates that were already, for the most part, pretty low, many wonder how far monetary policy can go. Is there room for even more unconventional—e.g. negative-interest-rate—policy? ZIRP and NIRP seem likely to spread to more countries, and fiscal policy is reasserting its role as a crucial tool to promote growth.

At the same time, political pressure is mounting on many central bankers, raising the question of independence. Although this question is not new, with worldwide growth declining, pressure is the highest in many years.

We are very aware that each central bank has a unique mandate. Not every country upholds independence as a core value, or mandates a focus on inflation or full employment. To recognize outstanding central bankers means to take into account results in light of individual missions and unique conditions. The governors run very different central banks in very diverse economies, each one a special case.

That lesson was driven home for us last year when we met the central banker of a major economy for an off-the-record conversation. After a candid conversation on his own mandate, the governor pointed to a far away developing country and its central bank. He politely suggested out that the grade we gave was “way too harsh,” not considering the governor’s macroeconomic constraints. We certainly try to do so, and we are glad for such insight from a key player.

This month, central bankers and finance ministers of all members of the IMF and the World Bank will meet in Washington, DC. These questions of independence, unconventional policy and managing growth will be unifying themes for leaders of all the world’s diverse economies.

Andrea Fiano | Editor