Central Bankers should have a degree in economics

I came across this interesting resignation letter from David Oddson, Chairman of Board of Governors, Central Bank of Iceland. Before explaining the letter, here is the organisation structure of Central Bank:

The Central Bank of Iceland is governed by a three-member Board of Governors, appointed by the Prime Minister. Administratively, the Bank comes under the Prime Minister and a seven-member Supervisory Board, which is elected by Parliament by a proportional vote after each general election. The Supervisory Board, which supervises the Central Bank’s activities, elects a Chairman and Vice Chairman from its own ranks. The last election by Parliament to the Supervisory Board was in May 2001, after a new Central Bank Act was passed. The Board of Governors oversees the Bank’s operations and is authorised to make decisions in all its affairs which are not assigned by law to others, including monetary policy.  

Hence, monetary policy and economics decisions are taken by the three Board of Governors and day to day activity by a Supervisory Board. This Supervisory board then elects a Chairman and Vice Chairman. This is more clearly specified here:

The role of the Supervisory Board is spelled out more clearly than before and its membership was expanded to seven. It supervises the activities of the Bank and must approve various rules which are issued by the Governors, including those on the internal working procedures described above. The Supervisory Board also has to approve the operating budget for the Bank at the beginning of each year

So, the resignation letter comes from the Chairman of Supervisory Board. It says:

At around the dinner hour on February 2, 2009, a letter was sent by messenger from the Prime Minister to the Chairman of the Board of Governors of the Central Bank of Iceland at the latter’s home. The Chairman’s place of work, of course, is the Central Bank, and this was a working day. The Chairman’s wife, who was alone at home because the Chairman was abroad on business for the Bank, received the letter and laid it aside unopened, as it was addressed to the Chairman of the Board of Governors. An hour later, she learned from a television news programme that the Minister had sent the Governors of the Bank letters requesting that they resign immediately from their positions with the Bank!

If they did not – or actually, in any case – she would present a legislative bill guaranteeing their removal and have it passed. Correspondence of this type, containing poorly disguised threats against government officials, is unique, not only in Iceland but in the Western world. The laws that are designed to guarantee the independence of the Central Bank and prevent political attacks on the Board of Governors have been violated. The responsibility borne by the Minister is therefore great indeed.

What is more bizzare is the reason for firing:

The Minister’s letter shows all the signs of having been written outside the Ministry, whether at political party offices or elsewhere. It violates all of the conventions pertaining to official correspondence of this type. It is now a matter of general knowledge that the Permanent Secretary of the Prime Minister’s Office and chief liaison with the International Monetary Fund programme was forced out of the Ministry in an unprecedented fashion. As is well known, the Prime Minister is also the nation’s minister of economic affairs. The Permanent Secretary who was summarily removed from the Ministry is one of Iceland’s best-known economists and a former Director of the National Economic Institute. The person replacing him is an attorney, yet in the Prime Minister’s letter, it appears that the principal fault to be found with the Chairman of the Board of Governors of the Central Bank is the fact that he is an attorney and not an economist.

Wow! So you resign from Central Bank if you do not have an economics degree. Oddson defends himself:

An informal survey has not revealed that other countries stipulate a particular university degree as a prerequisite for the position of central bank governor. It is widely expected, however, that central bank governors possess extensive knowledge of economic and monetary affairs. It is absurd to assume that a university-educated attorney with more broadbased experience in the administration of economic and monetary affairs than most people can claim is less equipped to carry out the duties of a central bank governor than a person who can present a particular academic degree – for example, a degree in monetary economics. It just so happens that, at the present time, public discussion implies that monetary economics may not be resting on solid foundations after the economic collapse that has occurred all over the globe. In these circumstances, it matters not whether the  leaders concerned are Nobel prize-winners or can cloak themselves with other, less impressive credentials.

All this shows how bad things have become at Iceland. It is not just a financial crisis but a complete crisis. People are trying to find scapegoats for the crisis and giving all sorts of crazy reasons. I can understand you throw the Chairman on the basis of performance but not on the basis of degree in economics.  And that it is all out in the open, is even more glaring (transparent though).

Today’s Eurointelligence edition says Oddson has resigned. This news says new law makes degree in economics mandatory and that would have made Oddson leave the job anyways.

One Response to “Central Bankers should have a degree in economics”

  1. Online Mba | Accounting Degree Says:

    […] Central Bankers should have a degree in economics « Mostly Economics […]

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