OMFIF BULLETIN OfficialGlobal MonetaryInsight on and Official Monetary and Financial Institutions Financial Institutions Forum September 2010 Another sortie for ‘Helicopter Ben’ Bernanke, feeling lonesome, prepares to go airborne Darrell Delamaide, Board of Contributing Editors yawning gap in economic policy But his lacklustre comments lent further unconventional measures if it proves Ahas opened up in President Barack sobriety to the downbeat picture on necessary, especially if the outlook Obama’s administration, heralding financial markets. This mild-mannered were to deteriorate significantly.’ further problems for world economic monetary helmsman now seems the governance as US growth slows only buffer between Americans and a Bernanke’s cheerless tone may reflect and signs of potential deflation or fresh bout of economic melancholia. how he’s feeling lonesome. The double-dip recession unsettle financial Obama administration needs to deal markets. In a 2002 speech on deflation, with an ominous downward turn in the Bernanke referred to a remark of economy. But numerous setbacks have The policy vacuum resulting from Milton Friedman’s about the Fed being rocked the administration weeks away disarray in the economic team places able to make a ‘helicopter drop’ of from midterm elections predicted to even more responsibility on the money by resorting to the printing produce an Obama meltdown. shoulders of the Federal Reserve. At press. The markets are now waiting in the generally gloomy annual central some trepidation to see if ‘Helicopter The Fed chairman told listeners at the bankers’ gathering at Jackson Hole, Ben’ dons his goggles and prepares Wyoming resort, ‘A return to strong and Fed chairman Ben Bernanke pointed to go airborne again to shower the stable economic growth will require out plaintively, ‘Central bankers alone world with dollars. appropriate and effective responses cannot solve the world’s economic from economic policymakers across a problems.’ Bernanke made clear that The central bank, Bernanke said, wide spectrum, as well as from leaders the Fed stood ready to act if necessary ‘is prepared to provide additional in the private sector.’ to ward off renewed threats to growth. monetary accommodation through (continued on page 4 ...) Contents Flurry on Zhou Stability fund with German muscle Stewart Fleming 3 Ten reforms to save the world John Plender 5 Beijing escapade Why Europe must stick together Igor Luksic 7 Jonathan Fenby , Advisory Board Markets must instil discipline Niels Thygesen 8 hina watchers were amused by a short-lived on-line end- August flurry involving the Governor of the People’s Bank Prospect of a new start over EMU David Owen 10 C of China (PBoC). A posting to a mainland internet discussion German pay restraint to continue Stefan Bielmeier 15 forum erroneously reported that Governor Zhou Xiaochuan had been accused of responsibility for losing more than End of exceptional career Roel Janssen 16 $400bn in China’s foreign exchange holdings and had fled to the US as a result. Sarkozy’s Bismarckian challenge Ousmène Mandeng 17 Renminbi goes international Julia Leung 18 The story was said to have come from the Hong Kong newspaper, Ming Pao. It was nonsense. China’s published Learning lessons from India Rakesh Mohan 20 reserves have continued to rise. Far from seeking a haven across the Pacific, Governor Zhou was busy receiving visitors Defining ‘wealth’ in sovereign funds Malan Rietveld 23 from Japan and attending a meeting of the Communist Party Asia steps up drive to self-suffiency Global analysis 24 Committee at the PBoC. Whether the rumour was an attempt to manipulate the market or the work of an isolated individual The unchanging language of money Harold James 26 or an organised group trying to cause the Governor harm is not known, but it caused high excitement for 24 hours. OMFIF Advisory Board 28 This document must not be copied While he can shrug off the bloggers, Governor Zhou has OMFIF and is only to be made available Official Monetary and faced tougher opposition to the desire often attributed him Financial Institutions Forum to OMFIF members, prospective members and partner organisations for appreciation of the renminbi. (continued on page 4 ...) www.omfif.org 1 OMFIF Official Monetary and Financial Institutions Forum Letter from the chairman Official Monetary and Financial Institutions Forum Extending our scope One Lyric Square London W6 0NB The link between East and West United Kingdom t: +44 (0)20 3008 8415 David Marsh, Co-chairman f: +44 (0)20 3008 8426 David Marsh MFIF has built up additional operating scope and strategic muscle during the Co-chairman Osummer. We have launched new bridgeheads in Latin America, Asia and North e: [email protected] Africa. We are developing an array of activities in fields ranging from personnel t: +44 (0)20 3008 5207 development to publications. Michael Lafferty Co-chairman We welcome nine new members of our now 41-strong Advisory Board: Hon Cheung e: [email protected] of State Street Global Advisors in Singapore; John Cummins of Royal Bank of Scotland; t: +44 (0)20 3008 8415 Mumtaz Khan of Middle East and Asia Capital Partners in Singapore; Saker Nusseibeh Evelyn Hunter-Jordan of Hermes Fund Managers in London; Rakesh Mohan, former Deputy Governor of the Managing Director Reserve Bank of India, currently teaching at Yale; David Owen, former UK Foreign e: [email protected] Secretary; Ila Patnaik of Delhi’s National Institute of Public Finance and Policy; John t: +44 (0)20 3008 5283 West of the Asian Development Bank Institute in Tokyo and Derek Wong of Dah Sing Kate Waddell Bank in Hong Kong. Chantai Brown OMFIF Secretariat In these pages, featuring a record number of contributors (10 of whom are from the e: [email protected] Advisory Board), John Plender provides us with an over-arching view of where it’s all e: [email protected] t: +44 (0)20 3008 5207 going wrong and proposes 10 reforms to save the world. The policy vacuum opening in the Obama administration preoccupies Darrell Delamaide. But, as Jonathan Fenby Neil Courtis and Meghnad Desai record, China and India are still forging ahead. Development Director e: [email protected] t: +44 (0)79 4747 5044 The ructions over the euro provide material for a trio of contributors: David Owen, who dwells on possible actions by the German Constitutional Court, Niels Thygesen, who Malan Rietveld looks at the balance of financial discipline wielded by the markets and governments, Head of OMFIF Education and Stewart Fleming, who explores the workings of the new European Financial Stability Chief Economist e: [email protected] Facility. Igor Luksic, Finance Minister of Montenegro - a non-European Union member t: +1 (0)416 818 4566 that has adopted the euro without any formal process - writes enthusiastically on the single currency: a reminder that the greatest EU enthusiasts are outside its borders. Sanjay Ujoodia Chief Financial Officer e: [email protected] Matters of personality are always intruding, often without invitation, into the ruminations t: +44 (0)20 3008 8421 of central bankers. We look at how the meanderings on race and immigration of an obscure German functionary promoted to the Bundesbank board are hampering Darrell Delamaide the work of European monetary union. Roel Janssen explains how the acting Dutch Newswire Editor e: [email protected] finance minister has dispossessed the long-time president of the Nederlandsche Bank. t: +1 (0)202 248 1561 Ousmène Mandeng describes the personal crusade of President Nicolas Sarkozy in favour of global monetary reform, and suggests he should learn from Bismarck. Tom Brown / Eugene Jordan Production e: [email protected] In the first of a monthly series, Stefan Bielmeier of DZ Bank gives us an overview of e: [email protected] the world economy, suggesting that growth is slowing but we’ll avoid a double-dip t: +44 (0)7808 793 723 recession. Strictly no photocopying is permitted. It is illegal to reproduce, store in a central retrieval system Julia Leung, under-secretary in the Hong Kong Financial Services and Treasury or transmit, electronically or otherwise, any of department, unravels the intricacies of renminbi internationalisation. Rakesh Mohan the content of this publication without the prior consent of the publisher. All OMFIF members are suggests the West can learn from India on macro-prudential policies. Malan Rietveld entitled to PDFs of the current issue and to an outlines a more logical global nomenclature for sovereign funds. Global Analysis looks archive of past issues via the member area of the OMFIF website: www.omfif.org at the rise of the Singapore-based Amro research organisation, part of Asia’s attempts to extend financial self-sufficiency. Harold James delves back into history and finds that While every care is taken to provide accurate information, the publisher cannot accept liability today’s policy-makers’ language on global imbalances bears uncanny resemblance to for any errors or omissions. what went on in the past. No responsibility will be accepted for any loss occurred by any individual due to acting or We hope revived acquaintance with ancient conundrums proves suitably stimulating. not acting as a result of any content in this publication. On any specific matter reference should be made to an appropriate adviser. Company Number: 7032533 2 www.omfif.org OMFIF Official Monetary and Europe Financial Institutions Forum Stability fund with German muscle ‘Federalist’ organs pushed into background Stewart Fleming, Board of Contributing Editors he European Financial Stability Facility (EFSF) set up to underpin weaker euro members The promise of Tprovides one more example of how the trans-Atlantic financial crisis has helped strengthen the role of the EU’s big nation states, led by Germany. Yet, indicated by rising massive liquidity borrowing spreads on troubled euro members’ debt, financial markets are unconvinced helped stabilise that embryonic European measures for better economic governance can heal the effects of the last crisis, let alone forestall new ones.