Interesting article but also depressing. Central bankers all seem to be cut from the same cloth, focused on the price level rather than the big picture.
In contrast, Mercouris quotes [Reichsbank head] Hjalmar Schacht approvingly:
Central banking requires a grasp of economics, but it requires something more, which [Russian economics minister Aleksey] Ulyukaev has but which [Central Bank of Russia chief Elvira] Nabiullina for the moment does not.
What that is was best summed up by the man who was arguably the twentieth century’s most famous — or notorious — central banker: Hjalmar Schacht, the man who headed the Reichsbank for most of the interwar period.
“…..the arithmetical nature of finance seems to inspire the mathematically-minded, and their efforts always tend in the same direction, towards the creation of an automatically functioning solution operating according to fixed mathematical rules. But the currency problem is not a problem which can be solved according to fixed rules. If it were, then perhaps a capable professor of mathematics would be the best financier after all. Monetary policy is not an exact science but an art. As such it is a sphere which will always remain mysterious to the man who is not capable of mastering that art, while appearing simplicity itself to the man who is.”This is not to say that the Central Bank of Russia has the freedom or the Fed, Bank or England or ECB, however. Countries that don't issue reserve currencies have to watch their foreign reserves just as central banks use to have to watch there gold reserves. This means that the central bank may have to use interest rates not only to target inflation but also the exchange rate, and Nabiullina did caution firms away from borrowing in foreign currencies. This is especially the case when the US plan was to use balance of payments issues to undermine Russia. But it seems way to early to be talking about targeting an inflation rate of 4% in the future although that's likely just jawboning to held quell inflation that's a current issue.
If economic minister Ulyukaev actually understood the situation he would realize that the opportunities lie through looser fiscal policy rather than looser monetary policy. But he is former central banker and monetarist. If anyone is shown the door, it should be him.
Russia Insider
Russia's Economics Minister Slams Central Bank - Alexander Mercouris
Alexander Mercouris
Alexander Mercouris
1 comment:
"Countries that don't issue reserve currencies have to watch their foreign reserves just as central banks use to have to watch there gold reserves. "
No they don't. You don't, technically, need reserves at all in a floating rate system.
What you need is to throw the Volker playbook in the bin, be prepared to bankrupt entities to sheet home losses to those playing the system and manage the real goods/service exchange cross zone if need be.
If an entity has dollar borrowings or owes in dollars and can't get any, then they have a cash flow issue and should go into administration just as surely as if they were short of roubles. If you play by the rules of another currency zone then you should die by it - which also ensures that the loss occurs in the other currency zone.
The problem is managing a floating exchange rate as though it is a fixed one. The art, if there is one, is to recognise the difference and couple it with an understanding of endogenous money.
Eventually one currency zone will learn how to use it and, like Britain in the industrial revolution, that will give them a huge competitive edge.
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