A central banker’s ‘licence to lie’

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SummaryTo mislead investors is actually a key skill required by a central banker’s job description

Federal Reserve Chairman Ben Bernanke, who retires this week as the world’s most powerful central banker, cannot be trusted.

Neither can Janet Yellen, who will succeed him this weekend at the Federal Reserve.

And neither can Mark Carney, governor of the Bank of England; Mario Draghi, president of the European Central Bank, or any of their counterparts at the central banks of Turkey, Argentina, Ukraine and so on.

I am not trying to aim a valedictory insult at Bernanke or his central banking colleagues. On the contrary, I am drawing attention to the skill and determination required by central bankers to perform one of the world’s most demanding and important jobs. For just as James Bond has a “Licence to Kill” in the Ian Fleming books, so central bankers possess a “Licence to Lie”—or, putting it more diplomatically and politely, to make promises about the future that cannot be honoured and often turn to be false.

Nobody ever blamed a central banker for promising to support the currency and then suddenly allowing a massive devaluation-as happened in Argentina last week and may soon happen in Turkey, Ukraine, Russia and many other emerging markets.

To mislead investors is actually a key skill required by a central banker’s job description. Revealing the true state of national finances at a time when a devaluation or comparable financial crisis is looming might be to guarantee the loss of the central bank’s entire reserves.

In the days when developed economies managed their exchange rates, it was taken for granted that whenever a central banker appeared on television categorically to rule out devaluation, support for that currency was about to be withdrawn.

When managed currencies collapse in emerging markets, the popular anger and accusations of dishonesty are always directed at political leaders, such as Argentina’s President Cristina Fernandez de Kirchner. In developed economies, too, when central bankers commit themselves to inflation targets or assure their nations that they can avert financial crises, or revive economic growth, nobody blames them when these promises turn out to be false. In Cyprus, for example, the one public official who survived the banking debacle was Panicos Demetriades, the governor of the central bank.

Yet despite this historic record of broken promises and unfulfilled commitments, central bankers enjoy more respect and trust than any other public official. They are particularly trusted by the people they most frequently deceive-financial market investors.

Which brings us to the state of the world economy

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