There is full employment in the labor market for central bankers with international know-how.
Monday’s nomination of Kathryn Dominguez to the Federal Reserve Board makes her just the latest in a line of economists with insight into how the world economy works to try their hand at monetary policy making.
If confirmed by the Senate, the professor at the University of Michigan in Ann Arbor with a track record of studying currencies will sit on the seven-member board alongside former Bank of Israel Governor Stanley Fischer and Lael Brainard, the U.S Treasury’s onetime top international adviser.
Dominguez, who has consulted for the International Monetary Fund and World Bank, has shown how foreign-exchange intervention can prove effective and monitored the buildup of international currency reserves. In a 2012 paper, she concluded the collapse of the euro is “not a scenario we can rule out.”
Such insights may prove invaluable given how international events play an increasing role in setting policy even as Fed officials say they set the interest rates appropriate for the U.S.
Fed Chair Janet Yellen and colleagues may have already held off raising interest rates this year in part because of a rising dollar. Other foreign headwinds include debt crises in Greece and Puerto Rico, China’s economic slowdown and geopolitical challenges from Russia to Iran.
The Fed itself is also alert to the risk that their eventual tightening of monetary policy may generate volatility overseas, something the IMF has described as a “super taper tantrum” in a nod to 2013 when the Fed’s withdrawal of quantitative easing rocked emerging markets.
The Fed is not alone in keeping an eye on abroad. Already this week, the Reserve Bank of Australia said its dollar is offering the economy less assistance than it expected amid China’s deceleration, while the Czech National Bank said it sold koruna for the first time since 2013.
Greece’s turmoil also means Sweden and Switzerland have been striving to restrain their exchange rates and the Bank of Japan has signaled it may boost stimulus if the yen strengthens.
Such a backdrop means international insights are being tapped for central banks. The Bank of England is governed by Canadian Mark Carney with support from former IMF official Nemat Shafik and American Kristin Forbes. Raghuram Rajan, a former research director at the IMF, helms the Reserve Bank of India and Haruhiko Kuroda spent about a decade at the Asian Development Bank before taking the helm of the Bank of Japan.
Coincidentally, Dominguez was nominated the same day as the IMF appointed Maurice Obstfeld of the University of California, Berkeley as its next research director. He too has written textbooks on international economics.