The Central-Bank Song Remains the Same
Even as the world's major central banks face important transitions, the choices of their new leaders have reflected a desire for continuity. In terms of both policy and personnel, the new normal looks set to be mostly old wine in familiar bottles.
LONDON – The changing of the guard that is taking place at the systemically important central banks in 2018-2019 will mark the beginning of a new era of monetary policy. Who is likely to lead this transition to a “new normal”? More important, just how new will it really be?
In the decade since the global financial crisis, advanced-country central banks have adopted unprecedentedly active monetary policies. The Bank of Japan’s Haruhiko Kuroda and the European Central Bank’s Mario Draghi maintain such policies to this day, in order to stimulate economic activity and counter deflationary pressures. By contrast, the US Federal Reserve, beginning under former Chair Janet Yellen, and the Bank of England, under Mark Carney, have been laying the groundwork for policy “normalization.”
Another systemically important central bank, the People’s Bank of China, has focused not on monetary expansion, but on financial reform. Former PBOC Governor Zhou Xiaochuan built a strong reputation domestically and, perhaps more so, internationally during his record-setting 15-year tenure, owing to his gradual, steady, and effective approach. Although the PBOC’s lack of official independence means that his authority to set interest rates was constrained by the advice of the 15-member Monetary Policy Committee, this did not affect Zhou’s ability to put in place the foundations of a financial sector befitting the world’s largest economy.