Behind Your Business

ONE of the perks of being governor of the Reserve Bank of India (RBI) is the use of a colonial bungalow on Carmichael Road, a posh street that weaves along a ridge in south Mumbai. On one side live some of India’s richest industrialists, modern-day pharaohs with flashy architectural tastes. On the other, a stone’s throw down a cliff, is a small slum—a monument to desperation and government failure. Both sets of neighbours are part of the 1.2 billion population that India’s central bank must look out for. In normal times this is a task that would furrow the brow; now that the country’s boom is faltering, it risks causing a blinding headache. Judging by the numbers, the RBI is among the world’s best central banks. Its record on balancing growth and inflation is decent enough (see chart 1). Since 1995 wholesale prices have risen by an average of 6% a...

THE man who the polls suggest will be the next French president, François Hollande, claims that finance is his “real adversary” in the coming election. Britain has just stripped the former chief executive of the Royal Bank of Scotland of his knighthood. Even Newt Gingrich is attacking the “vulture capitalists” in the private-equity industry. Perhaps the West is set for a “war on finance” along the lines of the “war on terror”, with similar uncertainty about how to define victory.Politicians seem to have three main beefs with the financial sector. The first is that bankers earn too much. The second is that banks take reckless risks and then need rescuing by governments. And the third complaint is that investors in financial markets have undue influence over an economy through their ability to affect bond yields and equity prices.The first two problems are really related. People do not worry too much about footballers’ high pay. The problem with bankers is the extent to which they are subsidised by explicit and implicit taxpayer support. (Of course, you might worry about income inequality in general but...

THE European Central Bank (ECB) tends to take the long way around. When in 2009 the Federal Reserve and the Bank of England slashed interest rates towards zero and started quantitative easing (buying government bonds with central-bank money), the ECB was more circumspect. It was reluctant to cut its main rate below 1% and loth to buy government bonds directly.Instead it adopted its own non-standard measures. It offered unlimited loans to commercial banks for up to a year against a broad range of collateral. The ECB’s oblique approach had much the same effect as the route taken by the Fed and others. A flood of liquidity from a €442 billion ($611 billion) auction of one-year ECB loans in June 2009 pushed short-term interest rates close to levels in America and Britain. Banks used much of the cash to buy government bonds, driving down long-term interest rates.

More than two years on, and in far more trying circumstances, the ECB seems to have repeated the trick. Faced with renewed recession, a bank-funding crisis and investor revulsion against all but the safest euro-zone government bonds, the ECB said on December 8th that it would...

MALAYSIA’S central bank, Bank Negara Malaysia (BNM), is the least predictable in the region, according to Robert Prior-Wandesforde of Credit Suisse. Its rate-setting decisions surprise analysts 26% of the time. That is not because it is erratic or antsy. Far from it. In the past seven years it has changed its policy rate only ten times, never cutting it below 2% or raising it above 3.5%. On January 31st it sat on its hands again.This serenity is overseen by Zeti Akhtar Aziz, the bank’s governor since 2000. She is not bothered by Mr Prior-Wandesforde’s finding. Predictability is prized by the advocates of inflation-targeting, who believe central banks can mould people’s expectations of prices. But the BNM never embraced inflation-targeting, even when it was fashionable.The bank surprised analysts by not raising rates in mid-2008, when the removal of fuel subsidies contributed to inflation of over 8%. “We were condemned by everyone, everyone,” Ms Zeti says. The bank then caught analysts out again by raising rates in March 2010, when the global financial crisis was...

THE banners at the entrance to the Bank of Greece museum in Athens promise a “fascinating journey through Greece’s modern economic and monetary history”. How could any passer-by resist? Inside the museum ranks of glass cases enclose an array of coins and old bank notes, as well as the paraphernalia used to make them. The bills range from 5 drachma up to 100m drachma, a reminder that Greece has had problems with inflation in the past. The end of history, at least for this exhibition, is 2001 when Greece adopted the euro. But the country’s present troubles suggest an important chapter to the story of Greek money is still to be written. Some reckon the drachma may roll off the presses again.This is no longer just a fantasy of diehard sceptics about the euro in Britain and Germany. Even Greeks concede that the big problem afflicting the economy, now in its fifth year of recession, is the uncertainty about whether Greece can stay in the euro and get its act together. Savers are anxious that their cash might be forcibly converted to a new Greek currency. By November the Greek banking system had lost a quarter of the...