Determinants of Central bank independence and governance : problems and policy implications

Central bank independence and governance (CBIG) is a term subject to conflicting definitions and so its related studies are difficult to compare. This paper therefore focuses on developing of a more useable definition, and an index model identifying the determinants of independence and governance and their possible policy implications. It also examines various independence measurement tools such as ranking and index. The index model resulting centres on key central bank independence and corporate governance issues, such as, legal aspects, political aspects, price stability objective aspects, exchange rate policy aspects, monetary policy and deficit financing aspects and finally, transparency and accountability aspects.

A critical analysis of central bank independence and governance in Australia and Bangladesh

This study examines central bank independence and governance (CBIG) in Bangladesh and Australia. It applies a unique index model of Ahsan, Skully and Wickramanayake (2008) to assess their respective legal, political, price stability objectives, exchange rate policies, monetary policy and deficit financing practices, transparency and accountability positions from 1991 to 2008. While the model shows CBIG is much weaker in Bangladesh than in Australia, the Bangladesh Bank’s CBIG shown considerable improvement over the period. These findings suggest that the Government of Bangladesh might learn from Australia’s experience with Reserve Bank of Australia and delegate further power and authority to Bangladesh Bank as well as lessen its political interference.

Central bank independence and governance in the South Asia

This paper constructs the central bank independence and governance (CBIG) index for eight South Asian countries and examines their relationship with inflation. This CBIG index is constructed following the unique model developed by Ahsan, Skully and Wickramanayake (2006). This index consists of total 26 variables; all variables together form the overall index and different sub-sets of these variables construct sub-indices (eg. legal; political; price stability objectives; exchange rate policy; monetary policy and deficit financing; and accountability and transparency).
Several countries have improved their CBIG in last fifteen years. The war torn Afghanistan have established a new central bank act in 2003 which has improved the standard of CBIG in the region. In recent time Nepal has made remarkable improvement in its ranking by allowing improved independence to its central bank. Bangladesh has taken lead in term of gradual CBIG improvement in last fifteen years. Sri Lanka, Indian and Pakistan are three countries always maintained a standard level of CBIG. Bhutan and Maldives showed less improvement among the countries. This paper also examines the statistical relationship between CBIG indices and inflation. The results indicate that there is a positive relationship between CBIG and inflation in the region which in contrary to normal expectation that inflation is one of the robust proxy of actual CBIG.

Financial crisis and central bank independence and governance (CBIG)

This study examines the impact of Asian financial crisis on central bank independence and governance in the Asia Pacific. It applies a unique CBIG index-model for 36 countries for the period 1991 to 2005. This paper examines changes in the CBIG in the Asia Pacific before and after the Asian financial crisis in 1997. It applies a panel data pooled regression model and finds that the Asian financial crisis dummy is significantly different in the post-crisis period compared to the pre-crisis period. As a result the improved CBIG in the post-crisis period has contributed to lower the inflation in the entire region.

The Power of words: Central bank communication and currency markets.

This thesis investigates the effect of central banks communication on exchange rates. It is found that Bank of Canada speeches had a dampening effect on the Canadian dollar exchange rate while Reserve Bank of Australia speeches did not have an impact on the Australian dollar exchange rate.

CEO tenure and other determinants of bank performance in Nigeria

 In 2010, the Central Bank of Nigeria announced a tenure limit policy for bank CEOs in Nigeria. Designed to evaluate this policy, this thesis found that a longer CEO tenure is actually associated with superior bank performance in Nigeria. It has therefore provided solid research evidence on the debatable policy.

Does monetary policy matter in a less developed economy? Evidence from Bangladesh

This paper explores the role of monetary policy in the context of a less developed economy. Monetary transmission mechanisms in less developed economies can be quite different from an industrialized economy, as unlike industrialized countries, these economies are characterized by the small size of organized financial markets, limited substitutability between money and other assets and weak fiscal and monetary institutions. We utilize the Structural VAR approach to analyze the monetary transmission process and impacts of monetary policy on different macro variables in Bangladesh. Monetary policy shocks are identified using non-recursive contemporaneous restrictions, which are based on the Central Bank's reaction function and the structure of the economy. We found strong evidence for the interest rate channel of monetary policy in Bangladesh. Our findings indicate that monetary policy shocks are important sources of fluctuations in the rate of interest, output and prices. Expansionary monetary policies are found to be harmful for achieving price stability in Bangladesh, as they not only increase the prices permanently, but also make the price level more volatile. We also found the evidence of a long lasting effect of monetary policy on output, which suggests that contractionary policy measures may create sustained recession in Bangladesh.

Corporate sustainability reporting of major commercial banks in line with GRI : Bangladesh evidence

Purpose – This paper aims to examine the tendencies of sustainability reporting by major commercial banks in Bangladesh in comparison with global sustainability reporting indicators outlined in the GRI framework together with banks' predilection toward reporting 16 GRI financial service sector (FSS) specific performance indicators.

Design/methodology/approach – Based on the GRI G3 guidelines, the paper investigated banks' reporting in five broad areas of sustainability, such as environment, labour practices and decent works, product responsibility, human rights and society. The 2008/2009 annual reports of 12 major commercial banks listed on Dhaka stock exchange were analysed and coded using a content-based technique.

Findings – The results show that information on society is addressed most extensively with regard to extent of reporting. This is followed by the disclosures prepared on decent works and labour practices and environmental issues. Furthermore, the disclosures of product responsibility information and the information for human rights are rather scarce in banks' reporting; on the subject of FSS-specific disclosures, only seven items out of 16 are disclosed by all sample banks.

Research limitations/implications – The findings of the study indicate that Bangladeshi commercial banks' social disclosures could develop in this style to become more holistic and over time (in association with the country's central bank involvement) to resemble a type of structured reporting to the point where they are properly labelled per se.

Originality/value – The study contributes to the social disclosure literature, in particular in a developing countries banking sector context, seeing as it disseminates evidence of the standing on social disclosures practices at the level of GRI with developing countries' banks data.

Actual intervention and verbal intervention in the Chinese RMB exchange rate

Central bank communication has become a more and more important instrument for the monetary authorization to intervene its exchange rate. This paper investigates the impact of both verbal and actual intervention on the exchange rate of China's currency, which has become the second-used currency in international trade settlement. The empirical evidence indicates that the central bank communication can influence the exchange rate, but the efficient is quite weak. Moreover, the effect of verbal intervention on the exchange rate of the RMB is weaker than that of actual intervention. One possible explanation is that most of the statements made by the governor of central bank on the RMB exchange rate are neutral in China. Overall, this study identifies the difference between the actual and verbal intervention in exchange rate in China, the largest emerging economy in the world.

Building G20 outreach: The role of transnational policy networks in sustaining effective and legitimate summitry

G20 outreach processes, in the form of the Think 20, Labour 20, Business 20, and Civil 20, Youth 20, and Women 20, are a formal attempt by G20 leaders to engage various social sectors with G20 policymaking. This essay contends that G20 outreach processes are best understood as transnational policy networks, which are involved in widening the field of policy communication and deliberation. The importance of these transnational policy networks rest upon their role in developing and disseminating G20 policy priorities and principles; and are an attempt to enhance the legitimacy and influence of the G20 and its policy proposals.

"We agree that, in order to strengthen its ability to build and sustain the political consensus needed to respond to challenges, the G20 must remain efficient, transparent and accountable. To achieve this, we decide to … pursue consistent and effective engagement with non-members, regional and international organisations, including the United Nations, and other actors, and we welcome their contribution to our work as appropriate. We also encourage engagement with civil society.G20 Cannes Summit Final Declaration 2011 (G20 2011)"

The difficulty in balancing the effectiveness and representativeness of the Group of Twenty (G20) has led to sustained questions about its legitimacy (Cooper 2010; Rudd 2011; Cooper and Pouliot 2015). Consequently, while leaders have long sought external advice about the agendas of Group of Seven (G7) summits since 1975, and about the G20 finance ministers and central bank governors’ meetings (G20 FM/CBG) since 1999, there has been intensification, elaboration, and institutionalization of transnational networks of policymakers with respect to the G20 in recent years. These networks are especially evident in the form of the G20 working groups and G20 outreach processes involved in the G20 FM/CBG and the G20 leaders’ forum created in 2008.

G20 working groups include transgovernmental groups of government officials and outside experts within a specific policy area who are charged with preparing material for G20 deliberations. G20 outreach processes are a recent and more formal attempt by G20 leaders to engage various social sectors with the policymaking activity of the G20 and were first considered by the G20 membership in 2010 with a more formal engagement with business interests. This led to the formal development of G20 outreach groups in 2013 in the form of the Think 20 (think tanks), Labour 20, Business 20, Civil 20 and Youth 20, which include representatives from these sectors. In 2015, a Women 20 outreach group was also added. These outreach processes are best understood as transnational policy networks which have been built to support the G20’s capacity to be effective and legitimate.

This essay focuses on G20 outreach processes and examines why and how the G20 has sought to augment its intergovernmental summitry and transgovernmental working groups with transnational policy networks, purposely involving a range of societal interests. Transnational policy networks demonstrate the existence of policymaking practices which include the policy influence of experts and advocates outside government. These networks also indicate the ways in which governments, International Governmental Organizations (IGOs) and summits like the G20 engage society, or where elements of society engage themselves with the policymaking process (Stone 2008). These networks intersect with the intergovernmental activities of leaders and key diplomats, and overlap with the transgovernmental relationships of various levels of government bureaucrats (Baker 2009). One of the principle features of transnational policy networks is the way they create and channel the communication of political ideas and priorities. However, it is important to keep in the mind the purpose and power of actors involved in the network and consider who has the discretion and motivation to create the network in the first instance. As the G20 members stated in 2012, the aspiration for outreach is founded upon an intent to strengthen the G20’s capacity “to build and sustain the political consensus”. Consequently, it is important to consider how the development of transnational policy networks in the form of G20 outreach processes are able to sustain the effectiveness and legitimacy of the G20.

This essay contends that G20 outreach processes are best understood as transnational policy networks. These networks have been built to widen the field of policy communication and deliberation. Furthermore, these outreach processes and networks are an attempt to enhance the legitimacy and influence of the G20 and its policy proposals. While there is no doubt that outreach practices are “ad hoc responses to the widespread charge that the G20 reproduces the politics of exclusion in global governance” (Cooper and Pouliot 2015, 347), these practices have the potential to improve both the effectiveness and legitimacy of the G20. The G20 possesses uncertain legitimacy and members of the G20 demonstrate an awareness of this and a corresponding willingness to actively develop various political practices to support the capacity and legitimacy of the G20.

However, G20 outreach also enables the G20 to place some limit upon the policy narratives and ideas that develop within these policy networks. The G20 is liable to be misunderstood without examining the activity of these transnational networks because the G20 is fundamentally a deliberative policy forum rather than a negotiating forum of binding regulations. Transnational policy networks have the potential to scrutinize and amplify relevant policy ideas and thereby enhance the legitimacy of the G20 and strengthen the capacity of the G20 to address an array of global economic and social problems. However, while some narrative control is important to amplify the G20 agenda, too much narrative control will undermine its legitimacy and capacity to develop broad-based responses to global problems. This essay explores the formation of these transnational policy networks by first outlining the evolution of the purpose and configuration of the G20, then it considers the ways G20 outreach processes constitute transnational policy networks and why they have been established, and lastly, analyses how these networks operate to enhance the legitimacy and effectiveness of the G20.

Regulating financial institutional culture: reforming the regulatory toolkit

Unethical behaviour and misconduct in the financial services industry is asignificant problem. Laws aimed at misconduct or incentives to misbehave can be rendered ineffective by poor culture within financial institutions. Various regulatory and industry initiatives to tackle the problem have been proposed or put in place in Australia. This article provides an overview of these initiatives and argues that while such strategies may be worthwhile, they also have shortcomings. The article contends that ameliorating cultural problems within the financial industry requires a multi-disciplinary approach and Australia should therefore consider introducing a supervisory technique pioneered by the Netherlands Central Bank (DNB) that incorporates social andorganisational psychology. It further argues that this approach, when placed in the hands of a regulator, offers a radical regulatory tool that could provide the “missing link” in promoting a culture of integrity within financial institutions.The DNB approach is described and various legal, theoretical and policy issues raised by this approach are discussed.

Corporate governance failure and its impact on National Australia Bank's performance

The National Australia Bank (NAB) is the largest financial services institution listed on the Australian stock exchange and is within the 30 most profitable financial services organisation in the world. In January 2004, the bank disclosed to the public that it had identified losses relating to unauthorised trading in foreign currency options amounting to AUD360 million. This foreign exchange debacle was classified as operational risk, the risk of loss resulting from inadequate or failed processes, people, or systems and reiterated the importance of corporate governance for banks. Concurrent issues of National Australia Bank’s AUD4.1 billion loss on US HomeSide loans in 2001, the degree of strength of their risk management practices and lack of auditor independence, were raised by the US Securities and Exchange Commission in 2004, reinforcing the view that corporate governance had not been given the priority it deserved over a number of years. This paper will assess and critically analyse the impact of corporate governance failure by management and Board of Directors on NAB’s performance over the years 2001-2005.