It is time for a single market - in central bankers
More and more companies are appointing foreigners to their boards. And global market forces are causing pay for top managers to converge across countries, especially in finance, where talent is quickly poached. So why hasn't the stuffy old business of central banking embraced this trend?
The answer is that national barriers are in the way. Amazingly, Alan Greenspan, whom many see as the best central banker in history, is one of the lowest-paid, with a salary of only $137,000. At the other extreme, Antonio Fazio, governor of the Bank of Italy, gets a package estimated at $600,000, even though his bank no longer runs his country's monetary policy. The governors of the European Central Bank, the Bank of Japan and the Bank of England also all earn far more than Mr. Greenspan. When such differences appear in financial markets there should be profitable opportunities for arbitrage.
Speak to almost any central banker today and he will privately express deep misgivings about other countries' monetary policies. By offering themselves for hire, they would get a chance to correct others' mistakes. Take the bank currently making the most obvious error: the Bank of Japan, which has persistently underestimated the risk of deflation and been too slow to ease policy. The BOJ lamely agreed at its meeting on October 13th to increase liquidity slightly, but it rejected full "quantitative easing" (buying long-term government bonds or using unsterilised foreign-exchange intervention). it also ruled out the sensible idea of an inflation target - with a floor as well as a ceiling. Japan's economy has started to grow, but an overly tight monetary policy and a strong yen could easily make it shrink again. The truth is that the BOJ is loath to cave into politicians, even when their demands are reasonable, purely because that might seem to undermine its independence. Indeed the governor, Masaru Hayami, has said he would resign rather than buy government bonds.
The answer to this dilemma is clear: the Japanese government needs to head-hunt Mr. Greenspan, by offering to raise his salary to the world market rate.
Overnight, his appointment would restore confidence in the economy; and if he continued with his current fondness for a lax monetary policy, he would stop Japan's deflation in its tracks.
Old Ladies; for hire
In Europe, the ECB has been doing a rather better job; its interest rates look about right. Its critics complain, however, of a shortage of accountability and transparency, and in particular about its refusal to publish the votes of individual council members. Without proper accountability and transparency, the ECB will find it hard to win public support and so will be an easy scapegoat for politicians if things go wrong. This presents another trading opportunity: Wim Duisenberg and Eddie George, the bosses of the ECB and the Bank of England respectively, should do a swap. Mr. Duisenberg could usefully pick up some tips from the Bank of England, which is widely acclaimed as a model of transparency and accountability. Indeed, that central bank should be commended for already having two foreigners on its monetary policy committee. As for Mr. George, he would get useful first-hand experience of the euro to help him build up more enthusiasm for it.
What about the Fed? America's economy looks dangerously overheated; monetary policy needs to be tightened. Who better than Mr. Hayami, who sees inflation everywhere - even, ludicrously, in Japan. And since he does not appear to worry about deflation, he won't mind taking a large pay cut. He could also offer advice, based on Japan's experience, on what not to do when America's bubble bursts which might well happen the instant Mr. Greenspan departs.
(NOTE: At the head of the article they showed a graphic of Central Bank Governors salaries. Italy was about $600,000, Britain, Germany, Japan and Europe about $350 - 400,000 and USA less than $150,000)
July 13 2002