Building a Camaraderie of Central Bankers: How Monetary Policymakers in the Caucasus and Central Asia Can Learn From Each Other
IMF Blog, November 17, 2014
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Bibliographic details
- Authors: Min Zhu
- Published: November 17, 2014
Context and overview
- Author: Min Zhu
- Publication date: November 17, 2014
- Region covered: Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
- Premise: Central banks in the Caucasus and Central Asia face complex monetary-policy challenges similar in nature (if not scale) to those confronting major central banks; sharing experience and building peer networks can accelerate institutional and policy development.
New and old challenges
- Progress noted over the last two decades:
- Greater central bank independence (varying degrees).
- Improved technical expertise.
- Increased transparency and better statistics.
- Price rises reduced from hyperinflation in the 90s to single digits in most countries.
- Persistent structural problems:
- Inflation remains relatively high and volatile.
- Dollarization is pervasive.
- Financial systems are weak.
- Several countries have low foreign exchange reserves.
- Recent external shocks and risks:
- The recent sharp slowdown in Russia, a key source of trade, remittances and investment, poses fresh challenges.
- Weakness of the Russian ruble creates tensions in monetary frameworks anchored in the U.S. dollar.
- Energy exporters in the region are adapting to the recent drop of oil and gas prices, which reduces a key source of foreign currency.
- Timely policy dialogue:
- A high-level workshop of central bankers from the region and international experts in Zurich two weeks ago (organized jointly by Swiss officials and the IMF) focused on making monetary frameworks more resilient to shocks and better able to support sustainable growth.
Focus on price stability and monetary-framework design
- Recommended strategic orientation:
- Move towards a clear and consistent monetary framework that more explicitly focuses on either the exchange rate or price stability.
- Examples of progress:
- Armenia and Georgia have made good progress on explicit inflation targeting.
- Other countries are in early stages of developing a consistent strategy and institutions.
- Value of peer learning:
- Central bank governors compared notes with colleagues from Croatia, the Czech Republic, Hungary, Israel, Russia and Serbia.
- Three priorities highlighted:
- First, develop a clear strategy of defining objectives (such as price stability), choosing targets (such as the inflation forecast or market interest rates), and developing instruments (such as open market operations).
- Second, build the analytic capacity to model and forecast the economy; despite poor data, models introduce rigor to policymaker discussions.
- Finally, develop a communication policy to clearly explain monetary policy and anchor economic expectations, for example on inflation; this may require proactive communication beyond a website and a press release.
- Preconditions for success:
- Develop supporting institutions: central bank independence, a reasonably deep financial market, and fiscal authorities that do not work in the opposite direction.
- A monetary regime can only work if it enjoys the full support of the government.
Building a peer-to-peer network and IMF support
- Networking rationale:
- Quote from Thomas Jordan, President of the Swiss National Bank: “You can’t buy reputation and expertise, but you can acquire it through networking.”
- Concrete steps taken:
- Establishment of a peer-to-peer network of central banks from the region enabling staff at all levels to communicate via an online discussion forum and regular meetings.
- Drawing on Swiss development agency SECO experience in establishing such networks in areas like budgeting and treasury operations.
- IMF’s role:
- The IMF will moderate discussions and provide analysis and technical advice.
- IMF teams of economists and financial sector experts will prepare in-depth background papers on monetary issues as part of regular consultations.
- Anticipated assessment of progress in one or two years.
- Broader reform agenda:
- Building a credible monetary framework is a key step towards moving the countries of Central Asia and the Caucasus to emerging market status; the IMF stands ready to support this process.
Source: Min Zhu, November 17, 2014 (IMFBlog).
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