By Hema Senanayake –
I suppose it is wishful thinking on my part. Still I wished if I could advise Prime Minister on the selection of a person for the appointment of the governor of the central bank after Arjuna Mahendran, assuming that he is leaving soon. If I happened to advise him on one-to-one meeting I would do so only if I am allowed to talk to him as a colleague at least for that moment. The reason is not that I have a superego; instead I want to make sure whether he got my point in correct perspective. Let me explain this point quickly before we get back to the subject matter.
One day I went to hear a Buddhist talk. The Venerable monk made a nice Dhamma sermon. After the sermon, people were allowed to ask questions. During the time for questions, I observed that many times people presented two or more views on a very unique point of Dhamma made by the monk. Later, after the session I asked the monk as to why different individuals understood differently on a same point of Dhamma. I got a beautiful answer which I will never forget.
The monk explained that different individuals understand Dhamma differently as individuals have developed something known as “Five Faculties or Five Mental Factors” differently within their minds. As such none of the perspectives submitted by each individual when asking questions were wrong, but their questions show the different level of development of their minds in regard to the said five mental factors, he said.
On a different plane the monk’s above point equally applicable to any no-commonsense subject and in this particular case it applies to central banking too. Different individuals have different level of understanding of the subject. How can I advise PM meaningfully unless I do not know as to how far he has developed his “faculties” in regard to central banking? In regard to the subject, I am the boss not him and economics, especially monetary and macroeconomics, are not common sense subjects any more. As such any economic advisor must prepare his boss privately, confidentially and respectfully, in order to tackle any issue presented or submitted to him by any official –appointed or elected- for a decision. That is why I insist that I should be able to talk to him as a colleague, in order to give him any meaningful advice.
Since, I am not going to get a chance of my choice I have opted to give my advice through media by writing this article. Who would make a good Governor of the central bank? In regard to this question perhaps PM might need an advice.
Recently, Deputy Minister Eran Wickremaratne replied to this question. He said that the person should have an economic background first. What kind of economic background should he have? Eran’s statement does not explain it. Secondly he said that, since the Central Bank is a large institution, that person should have high-end managerial capability. I am not convinced. Former Federal Reserve chairman of the United States, Ben Bernanke had been teaching in Princeton University when he got appointed as a member of Federal Reserve. After a short period he was then appointed as the chairman of the President’s Council of Economic Advisors and subsequently he was elevated to be the Chairman of Federal Reserve which is the U.S. version of central bank. Ben Bernanke had no high-end managerial capability until he was appointed to be the Head of Federal Reserve. Thirdly, Eran pointed out that the person must have clear integrity with having no conflicts of interest. I agree.
However, in regard to the same question, Dr. W.A Wijewardena who retired from the central bank as Deputy Governor has a different view. I have another view. But both of us have something in common, that is, we both suggest that the nominee must take a test. Dr. Wijewardena presents a simple test for both the Governor and board members – And they should be able to explain in plain language in public forum the difference between reserve money and money; if they cannot, they should not accept the post of Governor or the post of a Monetary Board member. Somebody told me that due to the deficiency in knowledge, they (members of the monetary board) are being led in the wrong path by CB’s top bureaucrats who too are unable to pass this test today. This is an interesting test. I have developed another test. It too, is a simple test.
First, I submit a quote from the Governor of Chinese Central Bank (Bank of China). The nominee must explain the meaning of that statement accurately. Here is the quote;
“The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history.” (2009, Zhou Xiaochuan, Governor of the People’s Bank of China). In this quote he was referring to the U.S. dollar.
Perhaps, readers might think as to why the members of our monetary board must understand about the creation of international reserve currency. It is because, not only the international reserve currency is credit-based, but also the creation of our national currency –the rupee- too is largely credit-based.
Therefore, I am not proposing to appoint any person as the Governor of the Central Bank, who cannot explain the true technical meaning of the above statement of Zhou.
So, finally my advice to the Prime Minister is to find a person, possibly who can pass both above tests. That person possibly would make the best candidate to be the governor of the central bank and to be the Chair of the Monetary Board.
Also, readers might note that the above mentioned tests are open book tests; hence candidates for the post of governor and for the positions of monetary board members can refer any amount of books and consult any number of teachers before they take the tests. Even though Arjuna Mahendran is supposed to leave the job soon, I invite him to take the tests. If he does public will witness firsthand as to how rationale his appointment was. Further, I invite all incumbent members of the Monetary Board to take these two tests at least privately to see your competence by yourselves.
Real knowledge related to the subject must be the key parameter in appointing the governor and in selecting members to the monetary board: but true requisite cannot be some economic knowledge and high-end managerial capability as was pointed out by Eran.
For those who do not know central banking and the critical importance of it, appointing the members for the monetary board is quiet simple but for those who understand central banking truly, the appointment of the members for the Board could be tremendously a difficult task.