And the booby prize goes to…

SPOILER alert. Mark Carney. Regular readers, both of you, will be aware I promised to name this month my nomination for the worst central banker of the last decade.

The competition was frankly pretty tough.

Christine Lagarde was in the mix for her sterling (sic) efforts to politicise the communications and policy of the ECB. When announcing the ECB’s first interest rate rise for a decade back in February she couldn’t resist taking a dig at the UK for its inflation situation and thoughtfully blamed Brexit.

The French, eh?

Christine is already making the early running for the award for the 2020s. The introduction of the deliberately technical sounding Transmission Protection Instrument (TPI) last month took politicisation of ECB policies to a new level. Here’s the explanation provided by the ECB of these instruments…

‘subject to fulfilling established criteria, the Eurosystem will be able to make secondary market purchase of securities issued in jurisdictions experiencing a deterioration not warranted by country specific fundamentals [my italics, who decides eh?] to counter risks to the transmission mechanism to the extent necessary. The scale of TPI purchase would depend on the severity of the risks facing monetary policy transmission. Purchases are not restricted ex ante. TPI purchases would be focused on public sector securities (marketable debt securities issued by central and regional governments as well as agencies as defined by the ECB)’.

All reassuringly technical. A bit of Latin thrown in for good measure.

‘An open-ended commitment to buy Italian debt because the ECB has been the only net buyer for the last three years’ clearly doesn’t have the right ring.

I’m sure the German Constitutional Court will soon have something to say.

Monetary union without fiscal union – it’s not sustainable. They’ve been papering over this crack for more than a decade now. But Sloan’s law, things can be unsustainable for a very, very long time. Experts have been calling an Italian banking and sovereign debt crisis for years now. And the break-up of the euro. I imagine it’ll all happen one day. Whether it is any time soon, your guess is as good as mine.

But back to the awards. Another candidate that just missed out on the top slot was the unfortunate Andrew Bailey, present Governor of the Bank of England. His tenure’s turning out to be a bit of a mess.

When I wrote about my worries about UK inflation this January it had just passed 5%. As it was, a 30-year high. Now forecasters are suggesting it’ll get close to 20% next January. And what with energy shortages, pay strikes and chances of a shortened working week, I’m buying flares and polyester shirts and growing my hair.

I’ve met Andrew Bailey a few times. He’s nice enough. Very ‘sound’. Right tie, right accent. But in my (rarely humble) opinion, he’s more of a banking regulator than central banker (as was his predecessor, as it happens). This isn’t a distinction without a difference. I don’t think he’s really got much of an idea what to do about the present mess.

Which is a worry because the Bank has spent the last decade expanding its economic mandate without much opposition.

Andrew’s presently a bit under the cosh, as is the Bank of England generally. Mainly pressure from the UK’s ruling Conservative party cheered on by the Daily Telegraph.

Liz Truss, PM in waiting, has suggested a review of the Bank of England remit. There have been howls of protest from many quarters, including her opponent for the leader of the Tory Party, Rishi Sunak; the Bank of England itself; and, that bastion of the establishment, the Labour Party.

The general argument being that threats to the Bank’s independence will not go down well internationally.

The Bank of England has been very public with these warnings. Hmm. A group of technocrats suggesting they are above oversight, warning of dire consequences for international reputations if their actions are questioned.

Sound familiar?

Anyway, purrrlease, operational independence is one thing, but the setting of mandate, objectives and institutional framework and questioning performance are all clearly legitimate topics for political enquiry in a democracy. It’s all a red rag to the Brexit Tories anyway.

Sadly, Andrew is the wrong governor at the wrong time. Like I said, I don’t think his expertise is monetary policy. For my money, he let the cat out of the bag when he popped up one Sunday afternoon at the height of Covid to deny the Bank of England was monetising UK government debt. On 5 April 2020, to be precise.

He felt it important to take time out to remind us that ‘ultimately the impact of monetary policy is only temporary’. Ironic because at that very moment he was in the process of overseeing a 20% increase in money supply (M3) which was never unwound.

Andrew’s biggest misfortune was to be in the chair when the music stopped and inherit the mess created by his predecessor, and the winner of my nomination, Mark Carney.

Given my professional interests in sustainable finance it might seem odd that Mark Carney is my nominee. After all, did he not do so much to promote sustainable finance? Was he not Special Ambassador to Cop 27? Was he not chairman of the Financial Stability Board that developed the Task Force on Climate Related Disclosures framework? A framework which has become the bedrock of global climate disclosures. A framework which I strongly support professionally? Why yes, he was, and yes, I do.

But while he was doing all this, the day job got rather ignored. After his abortive attempt at ‘forward guidance’ early in his tenure, he rather gave up on monetary policy. No attempts made to normalise interest rates. No development of a policy programme to sort it all out. Just a decade of free money creating a range of new structural imbalances.

All so very unsustainable.

Economic policy debate was absent throughout this wasted decade. Group think prevailed. Policy makers and technocrats instead busied themselves with consensus moves without critique. No thought to real world consequences or costs. Central bankers fretted about prudential rules for banks and far off financial stability risks such as climate change rather than trying to resolve more immediate and massive global economic and financial imbalances. Global financial regulations reached a level of cost that will reduce long run growth rates.

Take Europe’s sustainable finance regulations. Something I’m in favour of in principle. But more than 20bn euros of annual cost was added to the industry with hardly anyone blinking or questioning.

We did.

These estimates are in the International Sustainability Institute Channel Island’s first paper published in April. I’m doing a series of interviews next week and a webinar with the UK think tank Z-Yen discussing the prohibitive costs of these regulations. I’ll also be presenting this paper at a fringe event during Sustainable Finance Week next month. Inflation has made people sit up and take interest.

If it reads like a bit of a rant this month, it was. No apologies. I’ve had a major beef with monetary policy practice for the last decade and I needed to get it off my chest. And it’s August. Yes, Covid and Ukraine were the touchpaper but it’s wrong to say that monetary policy has no impact in the long run. It matters. It affects ordinary people’s lives.

I don’t feel the need to squeeze in a contrived Guernsey angle this month.

My point?

It wasn’t just in Guernsey we had a wasted decade on the policy front. And we’ll pay the price for these global policy failures as much as everyone else.