Do Central bankers have license to lie?

A report published on Reuters made a controversial statement: central bankers lie.

"Federal Reserve Chairman Ben Bernanke, who retires this week as the world's most powerful central banker, cannot be trusted. Neither can Janet Yellen, who will succeed him this weekend at the Federal Reserve. And neither can Mark Carney, governor of the Bank of England; Mario Draghi, president of the European Central Bank, or any of their counterparts at the central banks of Turkey, Argentina, Ukraine and so on," acclaimed journalist and economist Anatole Kaletsky wrote in a report published on the news agency's website.

Kaletsky reminded his readers that his declaration was, in fact, not a statement to defame Bernanke or the others' legacies, but was an attempt to highlight the required skills needed for a person to be a central banker.

Central bankers are said to be given the licenses to make promises about the future that might be false or could not be honored. Misleading investors, said Kaletsky, is a skill needed by central bankers to mask the real state of a country or a nation's books at a critical period or crisis to avoid the loss of the reserves of a central bank.

Kaletsky touches the issue regarding the use of forward guidance by central banks, of which the US Federal Reserve defined as the tool central banks used to influence market expectations of interest rates in the future by exercising its power in monetary policy. For example, a central bank could communicate its market forecasts and future intentions publicly. On the other hand, the level commitment by central bankers to keep their promises has made forward guidance an inoperative tool, and as such, Kaletsky said, it was understandable for financial markets to panic.

Nonetheless, Kaletsky is confident that promises from the Fed, whether it comes from outgoing governor Bernanke or incoming and current vice Janet Yellen, will be believed by markets for now for one simple reason.

Kaletsky said, "The reason for confidence is the fact that continuing stimulus and easy money are the only economic policies that will serve the Fed's institutional interests - and the U.S. national interest - between now and 2016."

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Central Banks

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