By Tom Arnold
LONDON, June 14 (Reuters) - Debate has erupted within South
Africa's ruling African National Congress party about whether to
widen the role of the central bank to encompass job creation and
economic growth alongside its existing remit of ensuring price
stability. Ahead of the South African Reserve Bank's three-day monetary
policy committee meeting next month, Reuters used multiple
sources to look at the mandates of other central banks:
WHICH OTHER EMERGING MARKET CENTRAL BANKS HAVE A BROADER
ROLE?
Several countries including Russia, Ukraine, Malaysia, the
Philippines, Iraq, the Czech Republic and Hungary have a broader
mandate that also covers the promotion or support of economic
growth or development in addition to ensuring price stability.
Turkey's central bank, which has been criticised for its
handling of the country's economic troubles, has a mandate that
includes supporting the growth and employment policies of the
government "provided that it shall not conflict with the
objective of maintaining price stability".
Other countries have had similar discussions to South Africa
about the role of their central banks.
Brazil's government last year weighed overhauling the
central bank as part of a plan to cut state expenses and
strengthen the economy. That included discussion on whether to
add the monitoring of employment to the Central Bank of Brazil's
duties.
HOW DO THE MANDATES OF CENTRAL BANKS IN EMERGING MARKETS
COMPARE TO THOSE IN DEVELOPED MARKETS?
Traditionally, emerging market central banks have tended to
have a slightly different mandate to those in the developed
world. More volatile financial markets and currencies mean many
in the past acted as defenders of financial stability, as well
as fighters of inflation.
But with inflation in some emerging markets now largely
tamed and many less reliant on external funding, the role of
some is shifting to focus on keeping inflation in check as well
as boosting growth, often a priority for populist governments.
In general, inflation-targeting has become more fashionable
among central banks in recent decades as they have gained
greater independence. New Zealand and Britain were among the
first to adopt the technique involving making public a projected
inflation rate, then attempting to steer actual inflation toward
that target using interest rate changes.
WHAT ARE THE PROS AND CONS OF A WIDER MANDATE?
Debate about central bank mandates has tended to be more
prevalent in major markets. The U.S. Federal Reserve, the
Reserve Bank of Australia and Reserve Bank of New Zealand have
dual mandates under which they seek to boost employment while
keeping price stability in check.
Proponents of the structure say it ensures central bank
policies do not undermine job creation, while enabling clear
communication with the public, as inflation and unemployment are
widely viewed as important gauges of economic wellbeing. But
detractors say having a dual mandate can distract the central
bank from its most important focus, of ensuring price stability,
potentially leading to higher inflation without more jobs.
HOW INDEPENDENT ARE EMERGING MARKET CENTRAL BANKS COMPARED
TO THOSE ELSEWHERE?
One of the fears about any changes to the South African
Reserve Bank's mandate is that it could open the door to
political meddling. Some critics draw parallels with Turkey,
where political interference has raised doubts about the central
bank's independence.
Globally, five central banks have no formal autonomy:
Brazil, Thailand, Poland, Norway and China, according to a study
last year by Brazilian bank Itaú BBA.
The U.S. Fed is among central banks with the most autonomy.
It can deploy policy instruments as it chooses and apportion
levels of priority to each of its three objectives set by law:
maximum employment, stable prices and moderate long-term
interest rates.
Australia, Canada and Colombia are examples of those with
more limited powers, the Itaú BBA study found, whereby the goals
of monetary policy are often set by the government, often
working in unison with central banks. The central banks then
have the freedom to set the right policy to achieve those goals.