Monthly Archives: March 2012

Claire Jones

British householder, the time for chastisement is over.

The banking system’s woes are not your fault. You did not borrow too much in the run-up to the crisis. And neither is the recovery dependent on a fall in your debt.

So says Ben Broadbent, external Monetary Policy Committee member, in an interesting speech in the City of London today. (The FT’s economics editor Chris Giles has taken a similar view here).

According to Mr Broadbent, the banking system’s problems are instead the result of rampant expansion in overseas lending, which increased five-fold in the decade leading up to the crisis.

Mr Broadbent’s argument was convincing. But, if he is right, then quantitative easing in the form of gilt purchases makes little sense.

Though Mr Broadbent did not advocate this, his argument suggests that the economy would recover faster if the Bank did something akin to the European Central Bank’s three-year longer term refinancing operation rather than QE. Read more

Claire Jones

A little short of 40 years ago Clyde Dawson walked into a supermarket in Troy, Ohio and bought a pack of gum.

Twenty-five years later, his purchase was celebrated in an exhibition at the Smithsonian Institute.

Mr Dawson’s pack of gum featured the first ever barcode to be scanned. In the decades since, the use of the uniform product codes, represented in the form of barcodes and global location numbers which tie products to places, has enabled businesses to create a map of global supply chains, transforming the production process.

The use of a shared language among companies the world over, in this case in the form of the barcode’s serial number, meant invoicing and purchase orders, along with despatch and receipt advice could all be standardised across firms.

The anecdote is taken from a fascinating paper out today co-authored by the Bank of England’s executive director for financial stability Andy Haldane.

According to the research, finance is also in dire need of its own language. Not only would this confer economic benefits. It would also, the authors claim, lessen the chances of a major financial crisis. Read more

Claire Jones

Jens Weidmann, the Bundesbank’s president, claimed today that the decision by the central bank to more than double the provisions for losses on assets held on its balance sheet on the back of “risks stemming from monetary policy operations” was not politically motivated.

Here at Money Supply, we beg to differ.

In fact, the three figures below, taken from the Bundesbank’s 2011 balance sheet, out today, highlight rather nicely just why the relationship between Buba and the European Central Bank is becoming more fraught. Read more

Claire Jones

As most suspected, the Bank of Japan did little today to step up its fight against deflation.

Bar some tinkering with its special lending facilities, the BoJ kept policy on hold with the size of its asset purchase programme remaining at Y65tn.

However, there are signs that the central bank could do some proper easing in the coming months.

 Read more

I always enjoy reading speeches by Paul Fisher, executive director for markets at the Bank of England. They clearly set out his views and appear to come straight from the central propaganda unit of the BoE.  If you want to know the official line on the new Financial Policy Committee or macroprudential policy, read Paul’s speech from last night, for example.

The speech blames the lack of powers available to the BoE for officials’ inability to control the crisis, but reassures us that the new FPC is now seeing its recommendations implemented.

The logic of the speech is that the BoE’s voice could not work before the crisis so the BoE cannot be blamed. Yet voice is succeeding now, so the BoE must get the credit.

What is remarkable is that Mr Fischer seems to forget that the powers available to the BoE now are precisely the same as those available to the BoE in the crisis. New powers will come only when legislation is passed and certainly not until 2013.

Read the speech to feel the full righteousness of the BoE official line.  Or you can read the best quotes below. Read more

Claire Jones

Maintaining that “dollar lifestyle” just got a little trickier for Switzerland’s central bankers.

The Swiss National Bank’s new code of conduct, out today, forbids officials, their wives and all who live with them, from investing in anything where there is the merest whiff of a conflict of interest.

Foreign exchange transactions for anything other than purchases of non-financial assets, such as real estate, will only be allowed if assets are managed passively by an independent manager. Even for non-financial assets, any foreign exchange transaction of more than Sfr20,000 must be reported to, and approved by, the central bank’s compliance officer.

That will avoid any repeat of the embarrassment suffered by the SNB earlier this year, when Philipp Hildebrand resigned over currency trades made by his wife.

But could central banks elsewhere find their reputation damaged by the financial affairs of their most senior employees? Read more

Robin Harding

I have a piece in today’s paper previewing what promises to be a quiet Federal Open Market Committee meeting this month.

In particular, talk that the FOMC is now studying a programme of “sterilised” quantitative easing is, in my view, incorrect. I think the current FOMC discussion looks more like this: Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit

FOMC/ BoJ votes

The Federal Open Market Committee and the Bank of Japan’s policy board both vote on Tuesday. Will either panel back a change in course?  Read more

Claire Jones

The European Central Bank’s governing council has kept rates at 1 per cent.

Mr Draghi’s presser will begin at 14.30 local time (13.30 GMT). Click here for more on what to expect. Read more

While Brazil surprised the markets with a bigger-than-expected interest rate cut, South Korea and Indonesia on Thursday delivered exactly what had been predicted. 

The Bank of Korea and Bank Indonesia both left rates unchanged – in a clear sign that concerns about the impact of rising oil prices on inflation are matching worries about the threats to global growth coming from the eurozone. It’s a striking shift for Indonesia, which has – like Brazil – been a standard-bearer for aggressive pro-growth rate cuts.

 Read more

Claire Jones

As expected, the Bank of England has held bank rate at 0.5 per cent and the size of the asset purchase programme at £325bn.

The minutes of the meeting will be published at 09.30 on 21 March.

Ralph Atkins

Mario Draghi on Thursday faces perhaps his biggest political challenge since he become European Central Bank president in November.

Last week, a leaked letter from Jens Weidmann, Bundesbank president, highlighted rising anxiety at Germany’s central bank over the risks entailed in the ECB’s extraordinary actions to support the eurozone banking system, which have seen it inject more than €1trn in three-year liquidity in recent months.

How Mr Draghi responds to the confrontation at his press conference after Thursday’s governing council meeting could determine the extent to which his stewardship of the eurozone crisis is undermined by Bundesbank resistance.

The dispute could well dominate Thursday’s proceedings: with the ECB still waiting to see the impact of its liquidity measures on the real economy, no change is expected in interest rates. The suspense over Greece’s bail-out is unlikely to have cleared.

Mr Weidmann’s letter created considerable irritation and bewilderment among other members of the ECB’s 23-strong governing council. Read more

Ralph Atkins

Greece’s debt rescheduling has already bitten for some eurozone banks.

The ECB last week demanded €17bn in “margin calls” — the largest amount ever — from banks tapping it for liquidity.

The ECB gave no details but the surge followed its decision to suspend the eligibility of Greek bonds as collateral for the central bank’s loans. Read more

Ralph Atkins

Another milestone has been reached in European Central Bank history.

Following last week’s three-year longer-term refinancing operation, the size of the ECB’s balance sheet has exceeded €3trn for the first time (ECB, in this context, actually means “eurosystem” — the network of eurozone central banks of which the ECB is part). Its latest financial statement shows a €330.6bn increase in assets compared with last week, which was more or less the same as the increase in lending to eurozone banks.

As such, the ECB has drawn further ahead of the Federal Reserve in terms of the overall size of its balance sheet (see chart below). Read more

Claire Jones

Are US equities about to get a boost from a surprising source?

The Bank of Israel this month joined the Swiss National Bank and the Hong Kong Monetary Authority in investing in US stocks, initially setting aside 2 per cent of its $77bn reserves stockpile into share indices.

However, even though the amount could eventually climb to 10 per cent of its reserves, this hardly the sort of news that will move a market as big as US equities, for which $7.7 billion is small change.

But if other central banks, which collectively manage $10.7trn-worth of reserves, follow suit, then the impact could be significant.  Read more

Ralph Atkins

What do central bankers do when they are worried? They increase their reserves.

Tuesday’s Bild Zeitung reports the Bundesbank will next Tuesday declare a sharp drop in profits after increasing provisions against risks on its balance sheet. The amount transferred to the German finance ministry would fall below €1bn, Bild said. That would be less than half the €2.2bn profit reported for 2010 – which was around half the previous year’s figures, again because of higher provisions.

The Bundesbank is not confirming Bild’s report, but it sounds plausible. Jens Weidmann, Bundesbank president, told Handelsblatt in an interview last month that the rising risks borne by Germany’s central bank would require “more rather than less provisions. That will have an equivalent impact on the level of Bundesbank profit.”  Besides significantly higher provisions this year would fit with the Bundesbank president’s increasingly-cautious rhetoric more recently. Read more

Robin Harding

Kevin Brady, Texas Republican and vice-chair of the Joint Economic Committee of Congress, will introduce a bill to reform the Fed later this week. The bill, called the “Sound Dollar Act”, would among other things:

  • Give the Fed a single mandate for inflation and require it to monitor gold and other asset prices in defining price stability.
  • Give a permanent FOMC vote to all twelve regional Fed presidents (versus four in rotation — plus the New York Fed president — at present).
  • Require publication of Fed meeting transcripts after three years (versus the current five).
  • Require the Fed to report on the impact of its policies on the dollar.
  • Limit the Fed’s ability to hold assets other than Treasuries and repos outside of a board-declared emergency.

 Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit

Rate votes

Both the European Central Bank and the Bank of England set monetary policy on Thursday.

Neither the governing council nor the monetary policy committee are expected to budge. But we do have Mario Draghi’s monthly press conference to look forward to.

Expect a few awkward questions on Jens Weidmann’s leaked letter as well as reaction to this week’s offer of three-year loans.

The presser takes place at 14.30 local time (13.30 in the UK) on Thursday.  The Bank’s decision is released at noon local time, with the results of the governing council vote out at 12.45 in London (13.45 in Frankfurt). Read more

For almost the entire time the Bank of England has enjoyed operational control of monetary policy, the redistributive effects of monetary policy have rarely hit the headlines.

The public appeared to accept that interest rate rises hit borrowers and benefited savers and vice versa. The vast majority of the commentary related to the analysis of whether any monetary policy change was warranted by the prospects for inflation. This, in Britain at least, was the way the Bank of England liked it.

Unelected officials feel very uncomfortable about being seen to favour one group of society over another. Redistribution, after all, is properly something for elected politicians, since it involves using the power of the state to take money from some to give it to others.

It is noteworthy, therefore, both that the distributional effects of quantitative easing are now being raised vocally by strong lobby groups and that the Bank is feeling peeved, rightly so.  Read more

Martin Weale, one of the external members of the Monetary Policy Committee, delivered an excellent speech last night on the determinants of UK consumption.

The value of his speech did not arise from his bolted-on views that he does not think “there is likely to be a further case [for more QE] once our current programme is complete”.

Rather it came from taking a really big issue — the likely path of consumption — and analysing it in a way that brought insights from different sorts of households to the aggregate.

But in such an interesting talk, what on earth was he doing referring repeatedly to economic forecasts from the Office for Budget Responsibility? He has no influence over the OBR forecasts, but is important (one of nine) in agreeing the Bank forecasts.

It was akin to Moody’s downgrading UK sovereign debt on the basis of reading a report from S&P.  Read more