Howard Davies: 'Central bankers are no longer thought of as sorcerers'

From a speech on the future of central banks, given by the director of the London School of Economics, at the Hong Kong Theatre of the LSE, in London
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The Independent Online

On the other side of the Atlantic, in spite of almost 20 years without giving a media interview, Alan Greenspan has remained an object of untiring fascination to Fed watchers around the globe. Now the press can hardly wait for his successor, Ben Bernanke, to begin turning down their requests.

Professor Alan Blinder of Princeton recently noted that Ben Bernanke's appointment was generating little controversy in Washington. "The happy truth is that monetary policy is not very controversial - and is certainly not very political, these days," he says. "Instead there is a strong intellectual and political consensus that the central bank should be free of political interference, should keep inflation low and should promote high employment. While central banking remains part art, part science, the science has clearly been gaining on the art in recent decades. Central bankers around the world are increasingly thought of as technocrats not as philosopher-kings or sorcerers."

I suspect this is what Mervyn King meant. A boring central bank should set out its intentions within a framework set by government, with clear accountability. It should act predictably, with as much transparency as possible. It should eschew other entanglements, especially those - like institutional supervision - which carry reputational risks and require different forms of political control.

Its obvious commitment to efficiency and cost-effectiveness will insulate it from public and political criticism. Its financial stability commitment will be clearly and tightly defined, buttressed by an intimate relationship with the regulator. It will look, in other words, rather like the Bank of England today.