Broadcast 20th October 2000

	Hear our economics commentator James Morgan

Wim Duisenberg, president of the European Central Bank, came under fire for commenting on exchange rate policy and thus causing the euro to fall to new record lows.

Our economics commentator James Morgan, looks at what goes into making a really good central banker - apart from a desire to take a vow of silence:


"In an interview published in The Times of London, Wim Duisenberg said he thought that central banks would not intervene if conflict in the Middle East caused violent currency fluctuations.

"That is probably quite right. But he committed a huge sin: he discussed exchange rate policy in public.

"Central bankers must not do that. Anything they say could be misinterpreted or, even worse, be correctly interpreted."

Anything Central bankers say could be misinterpreted or, even worse, be correctly interpreted. James Morgan

"His American counterpart, Alan Greenspan, is credited with God-like qualities, and for making unfathomable utterances that leave the markets puzzled.

"He knows just when to change interest rates, and when not to. And how to muddy the waters - so the finest economists give him most of the credit for the nine-year economic wonder.

"Once, though, nearly four years ago, Mr Greenspan did say something that seemed to be clear and comprehensible. As the Dow Jones average neared the record six thousand level, he spoke of the 'irrational exuberance' of financial markets. That was surely a sign that he was going to cool things down.

"In fact he did nothing and when the stock market reached a level almost twice that exuberant level, Mr Greenspan was not in the least put out.

"The strange thing was, that as soon as the great man had made his apparently clear remark, a campaign was waged to re-mystify the public. If obfuscation is the name of the game the spin-doctors of the financial community are well practised: Mr Greenspan had not meant what he appeared to mean."

If obfuscation is the name of the game the spin-doctors of the financial community are well practised. James Morgan

"He was obeying the unspoken rule: be very boring for long periods and then catch the markets off balance or make them suddenly sit up and think. Thus the most successful central bank in history, that of the German Federal Republic, was an example to us all.

"Its committee consisted of men from narrow, provincial backgrounds. They had made it by collecting savings from local people and putting them into government bonds. If they had not been bankers they would have been exemplary and widely-admired tram drivers.

"There was the odd exception: Karl-Otto Pöhl, for example. This former sports journalist was head of the Bundesbank at the time of German unification and notably fell out with Chancellor Helmut Kohl over the exchange rate of the East German mark. But by that time the Bundesbank had gained its reputation and it could do no wrong.

"Just occasionally, though, it did do something interesting: sometimes it would change interest rates just because nobody believed it would. That was to ensure that it did not become too predictable.

"That does not mean you should not be transparent: in fact central banks again a lot by pu blishing their forecasts and deliberations. But it should leave open the question of what you are going to do, however boring you might wish to be.

Unfortunately, the European Central Bank is not transparent, and its boss has managed to be both boring and clear. So the euro is weak and is getting weaker. James Morgan