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Make of it what you will

by David Marsh, Chairman

Make of it what you will

This month’s OMFIF Bulletin combines the practical with the visionary. Practical, because we include an up-to-date account of the trials facing economic and monetary union in Europe. Visionary, because we assemble a selection of articles that map out a course of action for behaviour by official and private institutions to reinforce the safety and reliability of financial markets.

Without a doubt, the politicians behind EMU have recently made strides towards what our distinguished Advisory Board member Niels Thygesen calls a ‘proper set of fiscal and macro rules, which could well work – with support from the likely degree of market discipline.’ However, governments also have to confront their track record of having continually dashed hopes for improvement, summed up in Frits Bolkestein’s bitter description of EMU as a ‘boulevard of broken promises.’ Peter Warburton reminds us that previous efforts by the European Central Bank to take away the punch bowl at which market buffs are quaffing have triggered EMU crises. He fears Thursday’s ECB rate tightening could precipitate a similar reaction. The 23-25 March OMFIF meeting at the Nederlandsche Bank in Amsterdam was the occasion for sobering outpourings on the single currency, as our brief review of the gathering shows.

A more uplifting pointer to the future is provided by David Pitt-Watson, who calls for a new framework for responsible shareholder behaviour in which official institutions could play an important part. This would have positive structural effects that go well beyond the repercussions on individual companies and market sectors, he suggests. Ruud Lubbers and Paul van Seters, two new Board Members whom we welcome this month, applaud President Nicolas Sarkozy’s proposals for international monetary reform, even though they indicate it’s an uphill struggle. John Kornblum opens up a vista of a new world where western (and US) values will remain strong and governance of networks will take over from intergovernmental treaties as the main forces for stabilisation. Malan Rietveld outlines the new OMFIF education academy for central banks. This is an attempt to meet the rising demand for central bank education with a series of tailor-made services. We believe that central banking should be viewed as a profession, similar to law or accountancy, that requires a specific approach to education and personnel development.

In other spheres, Michael Lafferty examines the battles brewing between large international players in the payments cards business. Darrell Delamaide surveys the fresh tone of openness in US monetary policy decision-making. Jean-Claude Trichet’s pronunciations have become a less accurate guide to policy, but Ben Bernanke is emulating European practice by holding quarterly press conferences. No doubt, it seems, to describe a retreat from quantitative easing in coming months as the US economy (despite everything) improves. Stefan Bielmeier surveys the repercussions of the Japanese shocks and finds them manageable. Steve Hanke questions whether the fad for higher capital-asset ratios makes sense since they would depress broad money and reduce growth. William Keegan tries to penetrate the riddle of why the UK government announced last month a prospective sharp rise in Britain’s foreign exchange reserves in the next four years.

The world picture is adorned not by clear-cut hues but shades of grey. A UK official giving guidance on the currency reserves opines elliptically: ‘Make of it what you will’. Let that be our Leitmotif, at least for the coming month.