Central Bankers in the Line of Fire

CHICAGO – Central bankers should not only be above suspicion of wrongdoing, but also appear to be above it. So the decision in January by Philipp Hildebrand, Chairman of the Board of the Swiss National Bank (SNB), to resign over allegations relating to a suspicious currency trade made by his wife, is to be welcomed. But, while Hildebrand’s resignation should serve as a precedent to be followed by central bankers – indeed, all public officials – everywhere, the circumstances surrounding his departure smell much worse than what caused it.

On August 15, 2011, Hildebrand’s wife, Kashya, exchanged 400,000 Swiss francs into dollars. On September 6, Hildebrand announced that the SNB would cap the value of the franc against the euro, thus de facto forcing a depreciation of the franc vis-à-vis all other major currencies. As a result, the value of his wife’s investment soared by almost 20%. While Hildebrand claims to have had no knowledge of the transaction that day, he resigned because it was “not possible to provide conclusive and final evidence” that his wife, a former hedge-fund manager, traded without his knowledge.

A central banker should put his and his spouse’s money in a blind trust. Even if he did not know about the trade, Hildebrand committed an error of judgment in not reversing the transaction immediately. His resignation was warranted – as is enhanced disclosure of central bankers’ personal finances around the world.

Nonetheless, the circumstances of Hildebrand’s departure might be more worrisome than his lapse of judgment. Hildebrand was not just any central banker: he stood out for his independence, not only from political authority, but also from the banking sector. He spoke very early and strongly in favor of higher capital requirements for big banks, which also opposed his heterodox intervention in the foreign-exchange market.