Addressing a black-tie dinner last month in the heart of London’s financial district, Chancellor of the Exchequer George Osborne had a message for incoming Bank of England Governor Mark Carney.
“Mark, if you’re watching on television tonight, this is how the British eat every night,” said Osborne, as the U.K.’s banking elite feasted on chicken and quail terrine, followed by beef filet with ox cheek.
Quips about dining etiquette in the land of Downton Abbey are among the assimilation tips on offer for Carney, who today completes his transatlantic transfer to London from the governorship of Canada’s central bank. In becoming the first foreigner to run the 319-year-old BOE, he joins a select band of policy makers who aren’t native to the economies where they set interest rates.
Past and present luminaries of the international market for central bankers include Stanley Fischer in Israel, Adam Posen in the U.K. and Stefan Gerlach in Ireland. The willingness of governments to look across borders reflects their desire to employ the best expertise to revive economic growth and staff institutions that have become increasingly technocratic as they buy bonds and regulate banks.
“It’s quite unusual that such a senior position in a major central bank is filled by an outsider,” Gerlach, a Swede who has served as deputy governor of the Irish central bank since September 2011, said in an interview. “When you take a step back, you think that hiring foreign nationals is an obvious way for central banks to go.”
Carney, 48, doesn’t lack insights on the U.K., where he will live for the next five years, having left the Bank of Canada in May after serving as governor since 2008. Married to a Briton, he studied at the University of Oxford and worked in London for Goldman Sachs Group Inc. (GS:US) He agreed to seek a British passport when he got the BOE job.
As Financial Stability Board chairman, Carney is familiar with the role of the City of London, the moniker for the U.K.’s financial sector that is home to bank titans HSBC Holdings Plc (HSBA) and Barclays Plc (BARC) and is the hub for global currency trading. In Everton, he even has a British soccer team to cheer for.
“He’s quite simply the best qualified person in the world for the difficult job that lies ahead,” Osborne said on June 19. “Isn’t it a credit to our country that we accept without question that someone who is not British, but who is the best in the world, can lead our central bank?”
At the Bank of England, Posen, an American, was a member of the Monetary Policy Committee from 2009 until last August. David Blanchflower, a citizen of both the U.K. and U.S. who teaches at Dartmouth College in New Hampshire, joined the BOE from 2006 to 2009. Founding members of the MPC in 1997 included Willem Buiter and DeAnne Julius, British passport holders who were born abroad and spent much of their careers there too.
Some leave London to serve overseas. After working at the Bank of England for three decades, Ian Plenderleith became deputy governor of the South African Reserve Bank from 2003 to 2005. Charles Goodhart, another member of the first MPC, advised the Hong Kong Monetary Authority. Buiter’s wife Anne Sibert was a member of Iceland’s Monetary Policy Committee until recently.
European Central Bank officials determine policy for sixteen euro-area economies as well as their own. Frenchman Jean-Claude Trichet, president of the ECB from 2003 to 2011, listened to German language lessons when traveling.
“The concept of central banking is very much based upon the same main principles, whether you are in Canada or in the U.K.,” Trichet said in an interview.
Fischer stepped down yesterday after eight years as Bank of Israel governor, having taken Israeli citizenship to perform the role. Born in what was then North Rhodesia, he also carries an American passport. To avoid being branded the “American Governor,” he prepared by boning up on his Hebrew and ensuring he could easily converse on the economy and country with locals.
“It was very important I learned the language and understood the economy well before I came,” said Fischer. Carney “understands the British economy well” and “Canadian English is acceptable,” he said.
The economist John Maynard Keynes would have agreed. According to former BOE Governor Mervyn King, the first chief of Canada’s central bank, Graham Towers, was proposed by Keynes to succeed Montagu Norman at the Bank of England in the 1940s. Towers’ own deputy in Ottawa came from the Bank of England.
King, speaking alongside Osborne on June 19, noted that the U.K. is particularly open to international leadership. Vodafone Group Plc, BP Plc and British American Tobacco Plc are led by foreigners, as are soccer teams from Chelsea to Manchester City. Carney’s compatriot, Moya Greene, helms Royal Mail Group Ltd.
To prepare for his new economy, Posen, now president of the Peterson Institute for International Economics in Washington, recommends Carney study its structure, regional diversities and history. He also advises him not to let his international commitments get in the way of traveling around Britain.
“If you can show humility about understanding the specifics and the regions and institutions, that will serve you in good stead,” said Posen, who estimates he spoke to as many as 8,000 people in about 20 regional visits.
Still, Posen said Carney’s hiring is the “high water mark” for the global market in central bankers. Leaders in the U.S., Japan (BOJDTR) and euro area are unlikely to want foreigners running policy, while those in emerging markets will want to encourage home-grown talent, he said.
Goodhart says Carney should also take his time before deciding how best to run the Bank of England.
“Central banks, economies, structures, histories all differ and I would hope he’s not yet decided what changes he intends to make,” said Goodhart, who is now emeritus professor at the London School of Economics. “It would be a good thing to wait and actually look at the institution.”
For Gerlach, another veteran of the Hong Kong Monetary Authority, one advantage of being an outsider is the ability to join an organization untainted by prior events. In Ireland, that includes the banking turmoil it suffered in an aftershock of the 2008 financial crisis.
“I can see that in the collapse of the bubble, and the formation of the bubble, that just about everyone here must have taken a view,” he said. “So it’s hard to be neutral” for someone with a local background.
Blanchflower, who has criticised King’s BOE for “group think,” said the U.S. Federal Reserve system benefits from the views of a dozen regional presidents and that he provided broader views in the U.K.
“The benefit of having people with diverse views and backgrounds seems important,” he said.
Carney has signaled he shares that perspective as the BOE tries to augment the economic recovery and begins to flex its new powers to regulate the financial industry and ensure stability. He arrives in a London tainted by rate-setting scandals and bank bailouts.
“The value of me going there to the institution is to bring a different perspective,” Carney told Canada’s CTV News in February. “To be a bit of an outsider, to help with the reform, the re-founding, of the Bank of England.”
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