Central banking, 20 years on: I was there | Pensions - Aberdeen Asset Management
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June 21, 2017

Central banking, 20 years on: I was there

By Lucy O'Carroll, Chief Economist - Aberdeen Solutions

Where were you when Kennedy was shot? Sometimes we remember exactly what we are doing as history unfolds. Twenty years ago this month, the Bank of England was granted independence in a surprise move by the new Labour government. Writing in the Financial Times, Mervyn King remembers receiving a call from then-Governor Eddie George on a Bank Holiday, summoning him to Threadneedle Street: “An hour later, he and I sat in his office in an otherwise empty central bank, to which he had just returned from the Treasury, where Mr Brown had broken the news to him.” But the Bank wasn’t completely empty that day: I was there.

At the time, I was working in the Bank’s Inflation Report division and toiling away on a particularly troublesome chapter, completely oblivious to the fact that preparations were being made for the historic announcement several floors below. (I did wonder at the unusual commotion, however, not to mention the wheeling in and out of the Bank’s sandwich trollies.)

It isn't the Bank that writes the Inflation Report as such, nor the monetary policy committee (MPC). Rather, it’s a small band of economists, toiling away – increasingly wearily – as deadline day approaches. At least, that was the case in my day. Each quarter's publication had its own rituals, starting with a ‘stories’ meeting, when we pitched chapter ideas to Mervyn King, and ending in waiting and yet more waiting around for comments on our draft chapters. We passed the time making in-team accumulator bets on various statistical data releases. One member composed haikus. Another wrote a version of Macbeth in which Eddie George and Mervyn King featured. Somehow we got hold of a wooden hula hoop and practiced our moves with that.

There were many, many late nights of the sandwich trollies, which led to a rebellion when a colleague from the Australian central bank informed us that their Inflation Report team was allowed to dial out for pizzas. We never did secure the luxury of hot food, though a fruit plate was conceded. There were also early mornings and the occasional breakfast drafting meeting with Mervyn King, which prompted speculation (and more betting activity) on his favoured cereal. Weetabix, I seem to remember, though that may have reflected the very limited choice – another food grumble.

It was all very stressful, especially if your designated chapter was complex (the labour market) or one where the data came in at the last minute, potentially blowing out of the water the ‘story’ of sixweeks crafting (money and credit). We calmed ourselves with raids on the chocolate machine and such heavy use of the local coffee shop that I was given a cake and a chorus of "happy birthday" by the staff when I turned 28. Two of the four of us got shingles, heavy colds were a constant and during my first Report I developed a spontaneous and highly inconvenient nosebleed whenever Mervyn King appeared.

And do you remember the Asian Crisis, later the same year? The US central bank’s decision-making body, the Federal Open Market Committee (FOMC), spent a lot of time discussing the global risks posed by the crisis. I was there too.

Having been lucky enough to receive an invitation to the annual Jackson Hole central banking symposium, I sat down in the spacious conference room to await the first seminar – and inadvertently joined the FOMC. Well, how was I to know that its members always sat in the same place, and always together? But one of them very kindly told me to stay put, and even loaned me his World's Greatest Dad sweatshirt against the chilly air-conditioning. So there was I, not only sitting in the midst of the world’s most powerful interest rate-setting committee but actually wearing their clothes.

What do we learn from history? From Bank of England independence, that it may not have been proved a cure-all, but has been positive – think of the global financial crisis with the added complexity of monetary policy determined by the political weather. From the Asian Crisis, we learn that pegged currencies can stoke up all sorts of ills. And as history’s witness? I learned that the most stressful experiences can sometimes be the most formative ones; and never to underestimate the power of US air conditioning.

Lucy O’Carroll
Chief Economist – Aberdeen Solutions


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The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested.

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