The influence of the world's central bankers has never been more pronounced than during the global economic crisis when these captains of monetary policy had the daunting task of preventing a total financial collapse.
But which bankers have most effectively combated economic issues to avoid disaster? Who should have done things differently?
Global Finance Magazine recently graded 31 central bank chiefs in its "Central Banker Report Cards 2009" series based on their performance in confronting problems and creating solutions. Here's a look at 15 key bankers and how they scored.
By Paul ToscanoPosted 28 Sept 2009
The President of the Banco Central do Brazil, Henrique de Campos Meirelles, recieved a B+, which is above average. Meirelles recieved the high mark for his "prudent fiscal and monetary policies," namely an interest rate strategy that helped curb inflation with a series of rate hikes, followed by a timely reduction in the country's benchmark rate that contributed to the economic recovery. The report notes that Brazil's GDP could rise as much as 8% in the second quarter.
Country: European Union
One of five bankers to receive an A, the EU's Jean-Claude Trichet was cited for a "gradualist" monetary policies that contained inflation while still supplying liquidity for the EU's banking system. Despite receiving heavy criticism, he avoided drastic rate cuts during the depth of the crisis. Although he has maintained a loose monetary policy, Trichet is again ignoring criticism and calls to raise interest rates, as he looks to ensure that Europe's economic recovery is fully in place.
Though no bank declared bankruptcy or received a government bailout, Canada's central banker, Mark Carney, received a middling grade of B for his work in 2009. With conservative banking regulations, the Bank of Canada provided less liquidity on a relative economic basis to other countries. When a strong Canadian dollar threatened the economy, Carney kept the country's overnight interest rate at 0.25% for an extended period of time. Global Finance also notes that Carney's decision to end a tax loophole inherent in income trusts made him relatively unpopular.
Bank of Japan's Masaaki Shirakawa was awarded a B-. While the bank's chief focus in the past two decades was deflation, the threat of inflation finally returned in the past year . With slowing growth and already low interest rates, tightening the country's monetary policy could have intensified Japan's recession, so the central bank effectively chose to do nothing. The BOJ expects the return to the normal economic environment if prices remain stable, but with growing unemployment and shrinking business investment, the biggest concern remains the avoidance of a "deflationary spiral."
Another highly ranking central banker in this year's report is Malaysia's Zeti Akhtar Aziz, who was able to maintain a low level of inflation throughout the recession. Although GDP has shrunk by 6.2% year over year, the bank has held back from drastic rate cuts, with the key rate expected to remain at 2% through 2010. Akhtar-Aziz earned such a high grade in part for ensuring that central bank rate cuts are passed along to borrowers. The bank is forecasting 1.5% to 2% GDP growth this year.
Country: United States
Perhaps the world's most influential central banker, Ben Bernanke may have brought the US economy and financial system back from the brink of disaster, but his low grade of C reflects concern about the growing US debt position and possibility that his current policies may have planted the seeds of the next crisis. The US economy was aided by a large and expensive stimulus program funded by the Federal Reserve and Treasury, but the jury is still out on the long-term consequences and effects of these policies. This year's grade, however, is up from Bernanke's C- in 2008, which was the second lowest score last year.
Russia's central banker, Sergei Ignatiev, was one of four bankers to receive a C- this year, the lowest grade assigned by Global Finance. This rating was based on a failed attempt to stave off a crisis in the country's currency, a growing perception of risk in the Russian markets and his lack of public appearances throughout the crisis, which hurt confidence. Ignatiev was saved in part by slumping oil prices, which acted to ease inflation and decelerate the country's currency crisis.
Mexico's central banker, Guillermo Ortiz, was given a B. With an overwhelming majority of Mexican exports going to the US, the country's economy is inextricably linked with its big neighbor to the North. Despite an expected GDP contraction of 7% this year, Ortiz effectively managed expectations of the government, investors and the general populace. With interest rate cuts halted in August, the central bank predicts a gradual decline in inflation through 2010 and sees signs of general economic recovery. The bank was aided in large part, however, by the IMF, which extended $4 billion in assistance and an additional $47 billion line of credit in April.
Switzerland's central banker, Jean-Pierre Roth, was given a B by Global Finance. In 2009, the bank bought a 9% stake in UBS and battled deflation. Even with interest rates near zero, the Swiss economy is under-performing and suffers from an overvalued currency. Factored into the grade was also the central bank's "credibility problem" because of a lack of transparency.
Country: United Kingdom
The lowest scoring central banker in 2008, the UK's Mervyn King went from a grade of a "D" to a "B" in one year's time. Although his position was in question throughout all of last year, he gained another 5 year term after being widely criticized for his actions throughout the recession. However, this year's grade takes into account the multitude of problems faced by the UK economy throughout the recession, a situation where any central banker was facing inevitable failure. The UK's central bank was ahead of the curve with their policy on quantitative easing, with other central banks following the UK's lead. The bank now predicts that economic growth will recover in 2010, while inflation is expected to remain around 2% for the foreseeable future.
Country: South Korea
South Korea's economy was among the worst hit in the economic crisis, but its central banker, Lee Seongtae, received an A for his work. The Korean Won depreciated as much as 43% against the US dollar, while exports fell 34% year over year. Seongtae helped to restore stability in banking and FOREX markets by providing essential liquidity to the country's financial institution. He also lowered the country's key interest rate to a record low of 2%.
Singapore's Heng Swee Keat was awarded a B for his performance as the head of the city-state's central monetary authority. Unlike most other central banks, this one has no control over interest rates. Instead, Swee Keat used foreign exchange mechanisms and lending facilities to steer the economy through the crisis. Singapore's economy was among the first to emerge from recession Global Finance also says close bank supervision helped strengthen the financial system.
Israel's central banker, Stanley Fischer, was given an A. With an aggressive currency policy, the country was able to increase international reserves to a record $52 billion, double that of 2008. Fischer is also credited with reacting quickly to the financial crisis by tightening the country's currency exposure, including daily intervention in thee market. The Bank of Israel was also the first major central bank to raise interest rates in the wake of the crisis.
In 2009, the People's Bank of China changed course and began slowly tightening monetary policy, something it had been reluctant to do last year. With lending activity increasing by almost triple that of 2008 levels, China's "C" graded central banker, Zhou Ziaochuan, will certainly have his hands full. Although the country's GDP is expected to grow in 2009 by about 8%, there is also general concern about whether the economy will burn out and whether non-performing loans will dramatically increase. Contributing to the grade, Global Finance has taken into account that China's generally loose monetary policy puts into question whether the central bank can avoid a domestic credit bubble.
Another one of the highest scoring central bankers of the year, Australia's Glenn Stevens recieved an "A" for his work, emboldened by "aggressive" loosening of the country's overnight cash rate, slashing the key rate by 425 basis points in less than 1 year's time. He also has the distinction of reacting to the economic crisis before it was too late, and the Australian central bank maintains that it could sustain further rate cuts if necessary.