Global Central Banking Bureaucracy And Performance

The Economist chart below shows of the bureaucracy or the ratio of number of people employed by the world's major central banks relative to the population.

According to the Economist,

``AMERICA'S Federal Reserve may be the most important central bank in the world, but it has a smaller staff than the Reserve Bank of India and employs less than half as many people as the European Central Bank. The euro area has so many central bankers per head because many euro-zone countries have not shrunk their national central banks, even though they no longer have an independent monetary policy. With 71,200 employees, the Bank of Russia has the most employees of any central bank in the world, and the number of central bankers per head in Russia is the largest of any big economy. China has only 0.19 central bankers per 100,000 people. Even Somalia (not shown) has more central bankers per head than China does." (bold emphasis mine)

Does more central bankers translate to more effective monetary policies or more balance in the economic and financial system or price stability?

Well judging from the recent boom bust cycle, the answer is clearly a NO.

Apparently based on the above table, some of the economies that had been least affected by the crisis had been those with leaner bureaucracies.

Besides it doesn't take too much of central banking 'expertise' for a nation to accumulate heaps of debt in order to juice up economic 'growth'.


According to another article from the Economist, ``The sheer scale of their fiscal burdens may tempt governments to lighten their loads by inflation or even outright default. Inflation seems increasingly plausible because many central banks are already printing money to buy government bonds. To fiscal pessimists this is but a small step from printing money simply to pay the government’s bills. Adding to their worries, many economists argue that a bout of modest inflation would be the least painful way to ease the financial hangover.

``The rich world’s build-up of debt may also cause changes in countries’ relative creditworthiness. Investors have long viewed emerging economies as riskier sovereign borrowers than rich ones, because of their history of macroeconomic instability and more frequent defaults. But the biggest emerging economies are now by and large in better fiscal shape than their richer fellows, and that discrepancy is set to widen. The emerging members of the G20 had a ratio of public debt to GDP of 38% in 2007. By 2014, says the IMF study, this is likely to fall to 35%, less than a third of the rich world’s average. As a result the gap between the yields investors demand from rich and emerging economies’ bonds is likely to narrow." (all bold highlights mine)

Moreover, as adduced in the article, the current policies by central bankers is in the direction of the money printing nostrum.

This does not require a lot of personnel, except to churn out "studies" or "reports" that have been used to justify them. Just ask Zimbabwe's Dr. Gideon Gono.

This also implies that it doesn't also take too much of bureaucratic proficiency over the marketplace to debase a currency.

On the other hand, it could be construed that central banking have been proficient in resorting to policies that have made currencies lost its purchasing power.

From AIER

The purchasing power of the currencies of major economies have been declining since 1910 as shown in the chart above. The chart ends in 2005, the declining trend should be more accentuated today.

Bottom line: based on the above evidences, the correlation between ballooning central banking bureaucracy and economic, fiscal and monetary performance appears as inverse. This implies that a bigger bureaucracy doesn't mean more policy effectiveness, instead a bigger bureaucracy could translate to more economic fiscal or monetary underperformance.

This also extrapolates that central banking have been a monstrous boondoggle at the expense of society.

A reminder from Ludwig von Mises, ``Bureaucratic management is management of affairs which cannot be checked by economic calculation."