Part 2: A Closer Look at the World’s Central Banks

(eToro Blog) In a follow-up to last week’s post, today we will look at the other key players among the world’s central banks which impact the global economy in one way or another.

With the Swiss Franc being seen as one of the world’s safest currencies, in this enduring period of market turbulence the Swiss National Bank or SNB has played a much larger role in the world’s markets. However, the SNB’s role has been diminished thanks to the steadfast and unwavering determination by the SNB to suppress the rising strength of the Swiss Franc which has harmed the Swiss economy as a result; the bank’s mandate is to ensure price stability given the economic situation. The SNB is comprised of a 3-person monetary policy committee; the bank is unlike other central banks in that they don’t target a specific interest rate rather they determine an interest rate band. More than a year ago, the SNB intervened in the currency’s rise and pegged the Swiss Franc to the Euro, and has maintained that ceiling ever since, with only a few unexpected and unexplained breaches since then. The current chairman of the SNB is Thomas Jordan who assumed the position after Phillip Hildebrand resigned a year ago in the wake of a financial scandal.

The Bank of Japan is another bank known for its interventionist activities, but it generally telegraphs its intent ahead of the decision. The monetary policy committee of the Bank of Japan or BOJ is made up of eight members; the BOJ governor and two deputies and six other members. Like the SNB, the central bank has fought to curtail the safe haven Yen’s rise which is hampering the government’s restoration efforts in the wake of the March 2011 earthquake and tsunami. The bank’s mandate is to maintain price stability, with a key focus on rising inflation; to that end they recently set a target inflation rate. The BOJ’s most recent intervention came a week ago when the central bank increased its asset purchase program. The current governor of the BOJ is Masaaki Shirakawa.

The Bank of Canada or BOC’s monetary policy decisions are made by the consensus ruling of the bank’s governing council. That council is comprised of six members; the BOC governor and a senior deputy, as well as four deputy governors. The BOC’s mandate is to ensure the integrity and value of the Canadian Dollar, and to maintain price stability through inflation targets.

The monetary policy decisions of the Reserve Bank of Australia or RBA is made by the Reserve Bank Board, a committee which consists of nine members; the RBA governor and deputy governor, as well as the secretary of the Australian Treasury Department and six independently appointed members who are integral to the Australian economy. The RBA’s mandate is multi-fold: to ensure the stability of the Australian Dollar by controlling inflation, maintaining full employment and ensuring that all Australians are provided for economically. The current governor of the RBA is Glenn Stevens, who has held that position for more than six years.

The monetary policy decisions of the Reserve Bank of New Zealand or RBNZ rests solely with the bank’s governor. The central bank’s mandate is to ensure price stability through careful adherence to inflation targets, while avoiding fluctuations in interest rates, exchange rates and ouput. The current governor of the RBNZ is Dr. Alan Bollard, but he will be replaced later this week by Graeme Wheeler, a former managing director of the World Bank.

Australia and New Zealand are both export-dependent countries, and as such their economic fortunes are tied closely to the global economic driver, i.e. China. The People’s Bank of China or PBOC is the largest central bank in the world, with reserves in excess of $3.2 trillion. The mandate of the monetary policy committee is to advise and adjust monetary policy and targets for a specific period, through the application of monetary policy instruments to ensure the coordination between monetary and fiscal policy.

The PBOC’s monetary policy committee is exceptionally diversified across many areas of the government and academia, and is comprised of a dozen individuals. This consultative body includes the bank governor, two deputy governors and several members of economy-related key governmental offices including the ministries of Finance and State Development and Reform, and several commissions and committees including the Securities Regulatory Commission, Statistics Commission and the Insurance Regulation Committee, among others. The governor acts as the supervisor for the PBOC’s numerous responsibilities while the deputies provide assistance in the fulfillment of those responsibilities.

The appointment of the central bank governor is at the discretion of the President of the People’s Republic of China while the appointments of the deputies are at the discretion of the Premier of the State Council. Currently, the PBOC’s governor is Zhou Xiaochuan.

Copyright 2012 eToro Blog