Two central bankers have been catching intense media attention over the past couple of months. One is Bank of Japan Gov. Toshihiko Fukui. He is in a bit of a dog house for his investments in the now notorious Murakami Fund, as well as for some of the other ways he has been moving his money about.
The other is Leszek Balcerowicz, the governor of the National Bank of Poland. Balcerowicz is also in trouble, although his is quite different from the kind Fukui is in.
Balcerowicz is a very determined and highly outspoken central banker. He is strongly committed to all that a central bank should stand for as the defender of the national currency: price stability, exchange rate stability, efficient and healthy financial markets. He also is a staunch advocate of economic reforms. Indeed he was the architect of many of the initial reforms that brought Poland into the world of market economics.
For all of the above, he is likely to be viewed as an enemy by certain political classes in his own country. Especially the populist ones. At the moment, he seems to be coming into increasingly direct conflict with the powerful Kaczynski brothers.
Lech and Jaroslaw Kaczynski are the twin brothers who lead the Law and Justice Party, which has recently come to power in Poland. Lech is president and Jaroslaw is prime minister. They are apparently trying to diminish Balcerowicz’s authority by stripping him of banking supervisory responsibilities.
They also look set to concentrate the entire spectrum of financial supervisory powers in the prime minister’s office. If they can get away with it, that is.
Both the ECB and the IMF have expressed concern about the move, raising fears they will create the type of political interference such super regulators are known to bring to bear on financial markets.
Balcerowicz’s plight is a stark reminder of how potentially fragile a central bank’s independence can be. Which is all the more reason to guard independence with the utmost care and integrity. And all the more reason why central bankers must be immune to both political pressure and patronage.
Fukui’s plight is an equally stark reminder of precisely the same things. The only and very significant difference is that Balcerowicz reminds us by standing up for them, while Fukui does so by losing his grip on them through his own foibles.
How much money Fukui has or has not made from his investments may actually be irrelevant. Yet things are in a sorry state when central bank governors become beholden to prime ministers for support rendered in times of personal embarrassment over questions of integrity.
A central bank whose governor has to bow deeply to the prime minister in gratitude for speaking up for him under dodgy circumstances does not have much going for it in terms of independence.
At least that is the light in which things will be perceived hereafter. And it is most exasperating when a clearly capable policymaker trips up in this fashion. Especially when he holds the office of central banker.
Fukui has been hailed as a modernizer and a good communicator. He has tried to do all the things the other Japanese central bankers were accused of turning their backs on. For this, he is to be commended.
However, while his abilities are not in doubt, it is not necessary for central bankers to try out all the latest fashions in capital markets firsthand to conduct sound monetary policy.
If he wants to continue his capital market exploits, he ought to return to the private sector.