The Future of Central Bank Cooperation (An Outsider s Perspective) Beth Simmons Government Department Harvard University
What are the conditions under which cooperation is likely to take place? Economic explanations: inefficiencies. Political science explanations: Power Interests Institutions Qualities of and constraints on central bankers
What is cooperation? Joint operation or action A continuum from shallow to deep Deep cooperation: policy adjustments that differ from those that would have been taken unilaterally policies taken specifically to address a collective good or mutual interest
Overview: Players and institutions Information sharing Regulatory coordination Macro-management
Number of Central Banks, 1900-2003 BIS Members Other 180 160 140 120 100 80 60 40 20 0 1900 1910 1920 1930 1940 1950 Source: Morgan Stanley, Central Bank Directory (2004); Bank for International Settlements 1960 1970 1980 1990 1995 2000 2001 2002 2003
Central Bank Governors' Terms of Office (Number of Banks, World Wide) 70 60 50 40 30 20 10 0 Not Available Indefinite 8 Years 7 Years 6 Years 5 Years 4 Years 3 Years or Less G-20 Members BIS Members, not including G-20 Non BIS Members Data current as of 2004. Source: Morgan Stanley, Central Bank Directory (2004); Bank for International Settlements.
Average Tenure in Office, Governors of G-10 and G-20 Countries (post-war period) 12 10 8 6 4 2 0 Argentina Brazil Russian Federation Korea, South Turkey Japan India China Indonesia France Switzerland Germany Sweden Australia Mexico Belgium UK Canada South Africa Saudi Arabia USA Netherlands Italy G-10 G-20 Both Source: Morgan Stanley, Central Bank Directory (2004)
Democratization in BIS Member Countries (excluding: Bosnia & Herzegovina, Hong Kong, Iceland, and Serbia & Montenegro) 10 9 8 7 Polity Score 6 5 4 3 2 1 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 Standard Deviation Average
Elections and CB Governor Turnover (BIS members Only) CB governor turnover within 6 months Election years 25 20 15. 10 5 0 Number of cases each year 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Source: Polity IV database
Background of G-10 Central Bank Governors, 1990, 2000 and 2005 finance min other govt industry or finance academic IM F or O E C D 0.8 0.7 Share of governors 0.6 0.5 0.4 0.3 0.2 0.1 0 1990 2000 2005 Sum of Standard Deviations: 2.77 2.23 2.28 Source: Author s research; internet and various biographical sources
Information Sharing New normative framework: central bank transparency
Transparency in Banking Policy & Supervision Not reporting: Australia, Brazil, China, Greece, Turkey, India, Italy, Norway, Portugal, South Africa, Spain, United States, Euro Area 1=poor, 2=many shortcomings, 3=some shortcomings, 4=good, 5=excellent 5 Algeria Philippines Czech Republic Singapore Iceland Chile Croatia Russian Fed. Mexico Slovak Republic Israel Poland Korea, Republic of Austria Germany Netherlands Switzerland Japan New Zealand Romania Macedonia Bulgaria Hungary Argentina Estonia Latvia Lithuania Finland Slovenia France Ireland United Kingdom Canada Sweden 4 3 2 1 0
Monetary Policy Transparency Not Reporting: Australia, Austria, Brazil, Chile, China, Finland,Germany, Greece, India, Italy, Netherlands, Norway, Philippines, Portugal, Slovenia, South Africa, Spain,Turkey, United States 1=poor, 2=many shortcomings, 3=some shortcomings, 4=good, 5=excellent 5 Algeria Singapore Russian Fed. Mexico Poland Iceland Slovak Republic Romania Croatia Israel Switzerland Czech Republic Macedonia Bulgaria Hungary Korea, Republ.. Latvia Euro Area Japan New Zealand France Ireland Argentina Estonia Lithuania United Kin... Canada Sweden 4 3 2 1 0
Data Dissemination Not Reporting: Algeria, Australia, Austria, Chile, China, Finland, Germany, Greece, Iceland, India, Italy, Netherlands, Norway, Portugal, Philippines, Singapore, Slovenia, South Africa, Spain, Turkey, United States, Euro Area 1=poor, 2=many shortcomings, 3=some shortcomings, 4=good, 5=excellent 5 4 3 2 1 Croatia Slovak Republic Israel Russian Fed. Switzerland Japan Mexico New Zealand Poland Romania Czech Republic France Ireland Macedonia Bulgaria Hungary Korea, Republic of Argentina Estonia Latvia Lithuania United Kingdom Canada Sweden 0
Global Financial Stability Liberalization, integration, and consolidation will intensify Relative success of the Basle Accords and the Basle process Why? A coordination problem in a competitive environment with information asymmetries Remaining problems
The future of Macromanagement: exchange rates and monetary policy coordination: how viable? The role of economic theory: one s house in order Effectiveness of (& need for) currency interventions: Disparate evidence CB mandate: price stability
The problem of China: A coordinated move to flexibility?
Share of Reserves Held by the Major Economies China Korea Japan G10 US 100% United States 80% Other G10 60% 40% Japan 20% Korea China 0% 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year
Number of bills introduced in the US Congress dealing with exchange rates Senate House 9 8 7 6 5 4 3 2 1 0 1993 1995 1997 1999 2001 2003 2005 Year
Conclusions Challenges: Continued financial liberalization, integration, consolidation Imbalances; institutionalization of Asian cooperation Cooperative resources Information Prestige
US public confidence in Federal Reserve's ability to solve the economy's problems A lot practically none don't know per cent responding 40 35 30 25 20 15 10 5 0 1981 2001 2004 Survey year
How much Americans credit the Federal Reserve for good economic performance, September 2000 not much 11% none 3% don't know 5% a fair amount 44% a great deal 37% QUESTION: For each of the following, please indicate how much credit, if any, they deserve for the positive state of the economy in the past few years. How about...the Federal Reserve? US Gallup poll, 1 Sept. 2000
Who Americans trust to set economic policy, May 2003 Alan Greenspan 36% Democrats in Congress 19% President Bush 24% Not sure, none, all, other 21% QUESTION: Who do you trust the most when it comes to setting economic policy? Opinion dynamics poll, May 22, 2003
Conclusions Challenges: Continued financial liberalization, integration, consolidation Imbalances; institutionalization of Asian cooperation Cooperative resources Information Independence Experience Prestige