Mark Carney said that a more powerful Bank of England was needed to prevent future financial crises and sought to distance himself from a "fatally flawed" central banking model brought in by Tony Blair's Labour government.
The governor's vision for a more coherent Bank was unveiled , on the day chancellor George Osborne appointed a respected female economist as one of the Bank's deputy governors, ending four years of an all-male interest-rate-setting committee.
The appointment of Nemat Shafik, a former deputy managing director of the International Monetary Fund and former senior civil servant, was one of three announced.
Ben Broadbent, already on the monetary policy committee, will take over as a deputy governor from Charlie Bean when he retires this summer.
City grandee Anthony Habgood becomes chairman of court at Threadneedle Street, the equivalent of heading the Bank of England's board.
Carney, who moved to the Bank from the Bank of Canada last summer, set out his vision for a organisation with many responsibilities "but a single timeless mission" in a speech in London.
He was critical of attempts under the former chancellor Gordon Brown to focus Bank policy on an inflation target and attacked a consensus over the past two decades that central bankers' primary goal should be price stability.
"This focus initially made sense since one of the greatest challenges for macroeconomic policy in the late 1970s and 1980s was the fight against inflation," he said. "However, with time, a healthy focus became a dangerous distraction."
He described the move by Brown in 1997 to give the Bank independence to set interest rates focusing on an inflation target as a "deconstruction of the old model of central banking".
"In my view, while there were enormous innovations of enduring value during this period, the reductionist vision of a central bank's role that was adopted around the world was fatally flawed," Carney said in his Mais Lecture at the Cass Business School in London.
Referring to the "fight against inflation", he said: "With time and increased confidence, policymakers would win that war only to lose the peace."
Talking about the Bank's response to the crash, he said if it "knew then what we know now" and had had the powers it now has, the UK might have moved "towards Canadian outcomes" and avoided the stagnation at the tail end of the crisis.
Egyptian-born Shafik, who is also a British and US national, will take up a new role at the Bank – deputy governor responsible for markets and banking.
This means Carney has four deputies. She arrives as the Bank fights to shore up its credibility during a worldwide investigation into the alleged rigging of foreign exchange markets. Carney highlighted "serious issues" raised by such scandals.
"Changes must be made to both the hard and soft infrastructure of core markets to ensure they are fair, effective and efficient," he added.
His plans for sweeping changes follow a review by management consultants at McKinsey and Carney's speech was characterised by phrases such as "synergies and complementarities" and "a single timeless mission".
He described the financial crisis as a "powerful reminder" that price stability alone was not enough to guarantee wider macroeconomic stability.
Warnings about such risks were not followed up with any action, he added. He insisted lessons had been learned and "enormous new powers" promised to the Bank were now being fulfilled with the creation of new committees and watchdogs policing banks and financial markets.
As part of reforms seeking to counter criticisms of the Bank's sprawling and opaque structure, Carney announced the creation of an oversight unit modelled on the independent evaluation office of the IMF.
Habgood, who is chairman of Costa Coffee owner Whitbread, takes over as chair of the Bank's court of directors from David Lees, who leaves at the end of June. As the new deputy governor for monetary policy, Broadbent will be responsible for the Bank's analysis of the UK and international economies that feeds into interest rate decisions.
He takes on the post at a turning point in the cycle for borrowing costs. After five years at a record low of 0.5%, interest rates are expected to start rising again in 2015, albeit gradually, as the economic recovery gathers steam.
Carney said: "As the MPC has signalled, a low for long interest rate environment will likely be with us for some time." Andrew Tyrie, chairman of parliament's Treasury committee, said the reforms appeared to be "an important step in the right direction".
However, the Conservative MP said the committee would want to examine the process behind Shafik's appointment.
On Habgood's role, Tyrie said: "Stringent self-examination has not been a strong point of formal Bank governance. Further reform, both cultural and structural, may be needed."
theguardian.com
The governor's vision for a more coherent Bank was unveiled , on the day chancellor George Osborne appointed a respected female economist as one of the Bank's deputy governors, ending four years of an all-male interest-rate-setting committee.
The appointment of Nemat Shafik, a former deputy managing director of the International Monetary Fund and former senior civil servant, was one of three announced.
Ben Broadbent, already on the monetary policy committee, will take over as a deputy governor from Charlie Bean when he retires this summer.
City grandee Anthony Habgood becomes chairman of court at Threadneedle Street, the equivalent of heading the Bank of England's board.
Carney, who moved to the Bank from the Bank of Canada last summer, set out his vision for a organisation with many responsibilities "but a single timeless mission" in a speech in London.
He was critical of attempts under the former chancellor Gordon Brown to focus Bank policy on an inflation target and attacked a consensus over the past two decades that central bankers' primary goal should be price stability.
"This focus initially made sense since one of the greatest challenges for macroeconomic policy in the late 1970s and 1980s was the fight against inflation," he said. "However, with time, a healthy focus became a dangerous distraction."
He described the move by Brown in 1997 to give the Bank independence to set interest rates focusing on an inflation target as a "deconstruction of the old model of central banking".
"In my view, while there were enormous innovations of enduring value during this period, the reductionist vision of a central bank's role that was adopted around the world was fatally flawed," Carney said in his Mais Lecture at the Cass Business School in London.
Referring to the "fight against inflation", he said: "With time and increased confidence, policymakers would win that war only to lose the peace."
Talking about the Bank's response to the crash, he said if it "knew then what we know now" and had had the powers it now has, the UK might have moved "towards Canadian outcomes" and avoided the stagnation at the tail end of the crisis.
Egyptian-born Shafik, who is also a British and US national, will take up a new role at the Bank – deputy governor responsible for markets and banking.
This means Carney has four deputies. She arrives as the Bank fights to shore up its credibility during a worldwide investigation into the alleged rigging of foreign exchange markets. Carney highlighted "serious issues" raised by such scandals.
"Changes must be made to both the hard and soft infrastructure of core markets to ensure they are fair, effective and efficient," he added.
His plans for sweeping changes follow a review by management consultants at McKinsey and Carney's speech was characterised by phrases such as "synergies and complementarities" and "a single timeless mission".
He described the financial crisis as a "powerful reminder" that price stability alone was not enough to guarantee wider macroeconomic stability.
Warnings about such risks were not followed up with any action, he added. He insisted lessons had been learned and "enormous new powers" promised to the Bank were now being fulfilled with the creation of new committees and watchdogs policing banks and financial markets.
As part of reforms seeking to counter criticisms of the Bank's sprawling and opaque structure, Carney announced the creation of an oversight unit modelled on the independent evaluation office of the IMF.
Habgood, who is chairman of Costa Coffee owner Whitbread, takes over as chair of the Bank's court of directors from David Lees, who leaves at the end of June. As the new deputy governor for monetary policy, Broadbent will be responsible for the Bank's analysis of the UK and international economies that feeds into interest rate decisions.
He takes on the post at a turning point in the cycle for borrowing costs. After five years at a record low of 0.5%, interest rates are expected to start rising again in 2015, albeit gradually, as the economic recovery gathers steam.
Carney said: "As the MPC has signalled, a low for long interest rate environment will likely be with us for some time." Andrew Tyrie, chairman of parliament's Treasury committee, said the reforms appeared to be "an important step in the right direction".
However, the Conservative MP said the committee would want to examine the process behind Shafik's appointment.
On Habgood's role, Tyrie said: "Stringent self-examination has not been a strong point of formal Bank governance. Further reform, both cultural and structural, may be needed."
theguardian.com
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