More damaging criticisms of the RBA Board's credibility from the AFR today. Frankly, my mate Nicholas Gruen does not know what he is talking about on this subject (although he's clearly entitled to an opinion). The journo in question is also evidently unaware of the very serious allegations levied against Hugh Morgan--who he quotes in defence of having conflicted business executives setting interest rates--during his time on the Board. This is quite an oversight. In his published history of the RBA, Professor Stephen Bell, Head of the School of Political Science and International Studies at the University of Queensland, comments:
"Periodically, however, the Bank is shaken by the issue [of Board conflicts]. A former RBA director, Brian Quinn, was found to have defrauded his company, Coles Myer. In mid 1997 the Bank's apparent confidence in an 'ethical fix' was questioned when it was revealed that Western Mining Corporation had quadrupled its forward sales [to hedge the risk of price falls] of gold at the same time as the RBA was secretly selling two-thirds of its gold reserves. Hugh Morgan, the CEO of Western Mining, was a member of the Bank's Board at the time. He did not, and was not required to, absent himself from the Board meetings, which dealt with the gold sales."
Here are some of the more critical quotes in today's article:
"Mr McKibbin, who is not against having limited business representation on the board, argued more academics or experts in monetary economics would add to the board’s rigour and ability to challenge the well-resourced positions put by Reserve Bank officials. He said they would help a lot when debate was needed most: at critical but cloudy turning points in the economy. It would also be easier to publish detailed minutes, like other professionally staffed boards such as the US Federal Reserve and the UK’s Monetary Policy Committee, said Mr McKibbin, who is director of the Research School of Economics at the Australian National University.
There are other conflicts: in the past, the business troubles of members such as Peter Abeles, Brian Quinn and Robert Gerard have embarrassed the bank and prompted questions about how its directors are chosen.
Ken Clements, the Winthrop professor of economics at the University of Western Australia, said while the board was full of “honourable, hard-working types” who had delivered stellar results over the past decade, there was a role for more academic expertise. “It seems to me that the RBA board setting interest rates is a bit like the board of Telstra setting mobile charges,” he said. “The Telstra board would rely on experts in marketing and pricing for those decisions.”
Mr McKibbin said the secretary to the federal Treasury, currently Martin Parkinson, should not have a seat as this would remove a perception that the bank might set monetary policy to suit the government’s fiscal policy."
