Which central banker has the toughest job in 2006? Incoming U.S. Federal Reserve Chairman Ben Bernanke will need to be vigilant about inflation while getting the timing of interest-rate tightening just right. European Central Bank head Jean-Claude Trichet is likely to push through the first ECB rate hike in five years amid signs that inflation is rising and euro zone economies are finally rebounding. Yet all of that is playground stuff compared to what Zhou Xiaochuan, the governor of the People's Bank of China, faces. He is under enormous international pressure to orchestrate a steady appreciation of the yuan vs. the dollar while at the same time preventing a spike in inflation in an economy so white-hot it could hit 10% growth in 2006. As a key overseer of China's bloated banking system, he must also continue reforms to keep bad loans from ballooning.
Failure in any of these areas would not only derail Zhou's standing in President Hu Jintao's government but also destabilize China's financial system and send shock waves radiating throughout the global economy. After all, currency markets hang on Zhou's every word, given the $769 billion pile of foreign-currency reserves he oversees. Given the stakes, "many look to him to carry forward meaningful financial reform," says Stephen Green, a senior economist at Standard Chartered Bank in Shanghai.