Sunday, September 8, 2013

BIS aims beyond central banks, Cecchetti leaves on a high

     Stephen Cecchetti, chief economic adviser to the Bank for International Settlements (BIS), is leaving Basel, Switzerland and heading back to his home in Lexington, Massachusetts on a high.
    This year’s annual BIS report was a blockbuster, creating more newspaper headlines than any of the institution’s previous 82 annual reports, a personal success for Cecchetti who has spent the last five years working to get the BIS message across to a wider audience than just central bankers.
    For Cecchetti, however, it’s still too early to tell whether this year's message was transmitted effectively and understood by policy makers, his main objective since he joined BIS in 2008.
    "Much of the press think we must be speaking to central banks but in fact our audience is wider" Cecchetti told Central Bank News in an interview.
     “The BIS needs to engage constituencies beyond the central banks in order to ensure that its message is effective,” he added.
    Later today, the BIS board is expected to announce the name of a new economic adviser who will succeed Cecchetti who only intended to serve one five-year term.

    As head of the BIS’ monetary and economic department, Cecchetti is responsible for the annual report, which this year hammered home the message that central banks have pulled the global economy back from the abyss and it is now up to politicians to do the heavy lifting.
    Instead of engaging in quasi-fiscal policies, central banks should take a step back and return to their traditional focus of price stability along with the new task of insuring financial stability.
    Cecchetti's strategy for getting central bank governors to pay attention to this message is initially to go beyond merely speaking to them and engage opinion leaders, academics, journalists and the public.
    "I need the thought leaders to hear what we say so that our messages come back to the governors through the channels that they listen to in their own countries," he said.
    "These are the people that are partly influencing public opinion and the governors are accountable to the public in their countries."
    The picture that Cecchetti paints is a far cry from the populist descriptions of the BIS as an Orwellian Big Brother where shadowy private financiers collude with unelected central bank governors and manipulate the global economy over a glass of cognac in a smoke-filled room.
     This image of the BIS is partly fueled by its ownership structure – only central banks can now its shares – and what a casual observer passing by Basel’s main train station would see:
    A daily parade of serious-looking central bankers and financial supervisors in dark suits that disappear into the 18 story BIS tower building, at times guarded by armed Swiss police.
    Black limousines with smartly-dressed drivers wait a few quick steps from the building’s revolving doors, ready to speed off into the night at a moments notice with governors of the world’s most powerful central banks.

    If the BIS has any power, it is its ability to get these governors to sit around a table six times a year and listen to each other.
    BIS management, including Cecchetti, get to know the views and sensitivities of some of the governors, but monetary policy is ultimately based on national economic conditions.
     “We want them to think more about the impact of their policies on each other,” said Cecchetti, echoing the BIS’ long-standing view that major central banks should pay more attention to the global repercussions of their national policies.
    The BIS has always considered itself to be independent of national interests and takes pride in forming its own view of global economic policies. This is commonly known as the “BIS view” and most poignantly expressed in its respected annual reports.
    "We're an independent global voice in the central banking community," Cecchetti said.
    The annual reports are never sent to BIS shareholders or directors in advance but the views expressed naturally reflect some of the ideas that Cecchetti and BIS management pick up during the two days every other month that they spend with the governors.
    "It is possible for us to say things that some of the governors may be thinking," he said.
    Regardless of their statutory independence, it may be difficult for some governors to publicly criticize their own governments so the BIS can sometimes help provide a cover for those views.
    "Sometimes we can say things that hopefully will be helpful," he said.
    One of Cecchetti's legacies is forging closer ties to the academic community. Since its founding in 1930, the BIS has been a focal point for cooperation among the world’s central banks, not only as a host for central bank governors but also for research of international finance and monetary economics.
    But while a global network of central bank economists has been built up over the years, BIS never actively engaged with academics. This began to change around 2000 and now researchers from academic institutions spend time at the BIS and conduct joint research with BIS colleagues.
    “We want to get the best minds on board,” said one BIS staffer.
    Cecchetti - professor of finance at Brandeis University before joining the BIS with a degree from the Massachusetts Institute of Technology and a doctorate from the University of California Berkeley - has helped strengthen this network with academics.
    "It has made the BIS much more effective in its work to be engaged with the global research community," said Cecchetti.
    BIS working papers - between 20 and 30 are published every year - reflect the closer cooperation between its own staff and economists from universities or research institutions with the work becoming more technically sophisticated and academically solid.
    At the same time, Cecchetti has made it a point to make the BIS writing style easier to digest, or "more journalistic," as he said.
     "We want to make our products more focused and clearer, less central-bank-like. I wanted to make our messages more direct," said Cecchetti – at his core an American but with the sensibilities of a European.


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