One sentence from RBA governor Glenn Stevens shows how critical central banks have become – and why that must change


Glenn Stevens is on his victory lap after 10 years at the helm of the Reserve Bank.

He’s given a wide-ranging interview with the AFR where among other things he’s spoken about:

  • The experiences of the collapse of Lehman brothers
  • Why the RBA cut rates so hard and fast
  • Why it agreed with the imposition of the open-ended government guarantee for deposits and the banks
  • What he thinks about Australian property
  • Being called the most useless man in Australia bythe Daily Telegraph, and of course
  • What’s going on in global central banking and the tacit desire of central bankers to weaken currencies.

But in many ways one of the most telling comments he makes is about himself, as holder of the office of RBA governor, which conveys just how critical a role central banks now play in the global economy.

Stevens said:

“There’s plenty of people around with selfies with me in Martin Place.”

Think about that for a second.

People want selfies with the RBA governor? That’s an incredible level of visibility and attraction.

It’s not just the background where most public servants would be comfortable – it’s right in the hearts and minds of the population.

Stevens noted that former governor Ian Macfarlane noted that the governor’s visibility had increased and he said: “I’ve certainly found it has risen a lot in my time.”

It’s not hard to see why.

Whether it is Stevens here in Australia, Janet Yellen in the US, Mark Carney in the UK, and Haruhiko Kuroda in Japan, the lack of policy action from politicians across the globe in the post-GFC environment has left central bankers, and their teams, to carry the can for the global recovery.

Stevens said it’s just the way central banking is these days and people and the media have a “tendency to personalise any institution in the face of its leader”.

But it’s also a function of the reality that “globally, central bankers have had to do some pretty unorthodox things, feeling obligated to try to fulfil their mandate in very difficult circumstances and perhaps where other arms of policy couldn’t help”.

Which reminds me of what Stevens said in his farewell speech at the Anika Foundation lunch last month.

Stevens delivered his most brutal assessment of how politicians are handling economic reform.

Here’s the key excerpt from that speech (emphasis added):

“Many difficult choices will need to be made along the path of budgetary adjustment. At present, general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track.

But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of ‘fairness’, people look to their own positions, the interest groups all come out and the specific proposals often run into the sand. If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves.

That will occur should there be a moment of crisis, but it would be better if it occurred before then.”

Now contrast that with what Stevens said about his own, and the RBA’s, actions in cutting the cash rate 1% when Lehman Brothers collapsed.

Asked if such a move could cause panic Stevens said (emphasis added):

“Well, there’s always that possibility, and that’s why, you know – I’ve said before my heart was in the mouth a bit as we watched that unfold, but any time there’s a possibility that your actions and your words will be misunderstood, that’s always true, but in the end, you can’t let the possibility that you will be misunderstood prevent you doing what has to be done. Otherwise, you would always be behind.

Cue the rise of Donald Trump, Germany’s Alternative fur Deutschland, Brexit, the inability to form government in Spain, Belgium, and the vote for minor parties here in the last federal election and you can see how this plays out.

Let’s all hope incoming RBA governor Phil Lowe, when it’s his turn to recede into the background, can report that no selfies were taken because political leaders have finally understood monetary policy can’t do everything on its own and have already taken up the cudgel.