G-7 Governments Not Playing Favorites as Central Banks Revamped
It’s not paying to be either an insider or the favorite when it comes to landing the top job at a Group of Seven central bank.
In naming Stephen Poloz the next governor of its central bank yesterday, Canada bypassed Tiff Macklem, the bank’s current deputy head and the pick of economists surveyed by Bloomberg News. The appointment came just over five months after Bank of Canada Governor Mark Carney agreed to run the Bank of England as the U.K. government overlooked Paul Tucker, a three-decade veteran of the bank and the bookmakers’ bet.
Ignoring the front-runner or casting the net wider may mean governments are trying to shake up their central banks after the financial crisis and in the hope monetary policy will stay easy as economies slow amid fiscal cuts. The trend may have omens for who replaces Federal Reserve Chairman Ben S. Bernanke if he decides not to seek a third term next year.
“There’s a sense that the people at the top of central banks who were on watch before and after the crisis may need refreshing,” said David Tinsley, chief U.K. economist at BNP Paribas SA and a former Bank of England economist. “Bringing in outsiders also allows for a more well-rounded view of all the economic dynamics.”
More than five years since they began fighting a recession and market turmoil with interest-rate cuts and asset purchases, central banks are changing hands with the new bosses still under pressure to remain activist as inflation ebbs and governments lack scope to spend. The International Monetary Fund last month pared its 2013 global growth outlook to 3.3 percent from 3.5 percent.
Poloz’s appointment, which CIBC World Markets economists Benjamin Tal and Emanuella Enenajor called a “huge surprise,” marks the third straight time a Bank of Canada deputy has failed to be promoted. While Poloz had worked 14 years at the central bank in roles including head of research, he was most recently the chief executive officer of Export Development Canada. By contrast, Macklem spent most of the last 30 years at the central bank in Ottawa, which he first joined in 1984.
Carney, who has talked of securing “escape velocity” for economies, will be the first outsider to run the Bank of England in two decades when he takes over from Mervyn King in July. King served as the bank’s No. 2 for five years before succeeding Eddie George in 2003. U.K. Chancellor of the Exchequer George Osborne said in March that there’s a need for “monetary activism” in the U.K.
Seeking an end to repeated bouts of deflation and recession, Prime Minister Shinzo Abe also ignored the inner ranks of the Bank of Japan when choosing Haruhiko Kuroda as governor in February to replace Masaaki Shirakawa, who stepped down early.
While Shirakawa spent much of his career in central banking, Kuroda previously led the Asian Development Bank, ran foreign-exchange issues at the Ministry of Finance and worked at the IMF. Since taking the job, Kuroda has doubled monthly bond buying in a bid to hit a 2 percent inflation target within two years.
“Obviously in the U.K. and Japan, the governments would like to see faster growth and have a central bank governor supportive of that view,” said Brian Hilliard, an economist at Societe Generale SA and formerly at the Bank of England.
At the European Central Bank, it was Bundesbank President Axel Weber who made the early running to replace Jean-Claude Trichet as head in 2011 before dropping out in part because he anticipated clashing with governments. The post went instead to Bank of Italy Governor Mario Draghi.
Weber was replaced at the Bundesbank by Jens Weidmann, an economic adviser to German Chancellor Angela Merkel. Draghi’s successor in Rome was also a dark horse -- then Deputy Bank of Italy Director Ignazio Visco rather than ECB Executive Board member Lorenzo Bini Smaghi.
A question now is whether the recent practice internationally has implications for the Fed, where Bernanke’s term ends in January. Vice Chairman Janet Yellen was identified as the most likely successor by 65 percent of those polled at an April conference by International Strategy & Investment Group.
Yellen, who served on the Fed board in the 1990s and later ran the Fed Bank of San Francisco, may appeal to President Barack Obama, having advocated that attacking unemployment and boosting growth be put on equal footing with fighting inflation at the core of Fed policy.
“Janet Yellen has the right of first refusal,” former Fed Governor Laurence Meyer, co-founder of Macroeconomic Advisers LLC, told a Bloomberg Link conference in Washington on April 30. “There’s an advantage of transitioning to someone who has that kind of experience.”
Still, there have been 14 chairmen in the 100 years the Fed has existed, and none previously served as vice chairman.
“The idea that there’s a right of first refusal or some presumption that the vice chairperson has to be promoted is, I think, actually contrary to history,” Adam Posen, a former BOE policy maker and now president of the Peterson Institute for International Economics in Washington, told the same conference.
“In general, presidents appoint Federal Reserve chairpeople who they have some kind of personal relationship with,” Posen said, identifying former Treasury Secretary Timothy F. Geithner as a possible candidate.
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