From Helicopter Ben to Ambassador Ben..

Arvind Subramanian pays tribute to Ben Bernanke as the latter moves put of his role as Fed chair.

He says historians will look at Fed under Bernanke in due course of time. However, that is just one aspect. He played a stellar role as an American leader in global policy amidst chaotic and ineffective political leadership:

The world is still struggling to digest Alan Greenspan’s mixed legacy as Chairman of the US Federal Reserve Board from 1987 to 2006. So it is too soon to assess whether his departing successor, Ben Bernanke, is headed for history’s chopping block or its pedestal. But the crucial international role that Bernanke and the Fed played during his tenure – a time when domestic economic weakness translated into relatively ineffective American global leadership – should not be overlooked.

In these last five crisis-ridden years, the Fed has affected the world economy in two ways: through its hyperactive policy of purchasing long-term assets – so-called quantitative easing (QE) – and through its largely overlooked role in providing international liquidity. Let us consider each.

He says his role to provide USD liquidity to large no of EMEs as part of swap facility (something which India could also have looked into) was remarkable.

the Fed has been mindful of its international responsibilities, playing a constructive role by increasing dollar liquidity in times of extreme financial stress. It provideddollar liquidity (via swap lines) to the central banks of Brazil, Mexico, Singapore, and South Korea in the aftermath of the Lehman failure. And it has provided nearly unlimited amounts of similar liquidity to central banks in Europe and the Bank of Japan. These actions contributed to easing extremely tight financial conditions and corresponding market volatility.

The Fed’s support to emerging-market central banks was remarkable, because most of these countries chose not to borrow from the International Monetary Fund, which, in the aftermath of the Asian financial crisis in the 1990’s, had come to be considered an instrument of US hegemony. They preferred to deal directly with the United States via the Fed, to which the IMF stigma evidently did not extend. In fact, the speed, timeliness, and effectiveness of Fed support have now led to efforts to institute similar mechanisms at the IMF.

The Fed’s support for Europe was similarly remarkable, because the rest of the US government was an ineffective bystander at the time – able to offer cheap counsel but little hard cash to the eurozone’s distressed economies. Even efforts to augment the IMF’s resources floundered on the reef of American political dysfunction. All other major economies, including key US allies, have enacted the legislation needed to strengthen the IMF; in the US, however, there has been no comparable action since 2010, owing to Congressional resistance.

However, people have criticised this swap window conversion to an elite club window now.

He says under this context, we should perhaps call him Ambassador Ben:

Dollar supremacy will not last forever, and it is increasingly being challenged by the Chinese renminbi, as I describe in my book Eclipse: Living in the Shadow of China’s Economic Dominance. But that vestigial source of American supremacy made Bernanke a constructive and effective international leader. As he departs from office, the assessment of his performance as “Helicopter Ben,” who dropped piles of cash on the US economy, will begin in earnest. But history should not neglect “Ambassador Ben’s” crucial global role.

Whatever it is, it was an amazing coincidence that a Great Depression historian presided over Fed when a near similar event happened under his nose. It is even more remarkable that how he and his team tried to get US out of the shock but has found huge criticism in the ways deployed. Usually in any other country, he would be seen as demi-God and so on. Not in US though.

Given the circumstances, Bernanke never lost his cool and always put Fed over his self. This is really a hard act to follow for most central bankers who look to gain all possible limelight they can. His act in terms of personal behavior is a real tough act to follow..

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