February 25, 2001
The Central Bank has been split into what appears to be three separate organisations, but just how many central bankers does it take to mint a fiver?
Quote: ‘Pecunia non olet’ (Money has no smell) — Vespasian, AD 9-79
Next Wednesday is Ash Wednesday, a day I always remember fondly. On Shrove Tuesday, I used to stuff my face with Curlywurlys and Aeros before the fearful 40-day fast. The next morning, bloated and tired, I would be splitting my sides as the sanctimonious tried to out-ash each other in the great battle of the blackened foreheads.
And then the clouds darkened, there’d be no more laughing and it was Lent. Forty long days and nights without sweets or Taytos.
The best thing about an Irish Lent was St Patrick’s Day. In an act of shameless ingratiation verging on the heretical, Irish Catholics, unique throughout the Roman church, were allowed to break our fast on March 17 without the threat of limbo for eternity. (Funny, isn’t it, how we’re still bending the rules of every club we join? The EU should have done its homework.)
In O’Connell Street, perched on my dad’s shoulders, chomping Marathons, Twixes and anything I could gobble, I secretly praised the lenient St Paddy, as pre-pubescent pom-pom girls from Tallaght went through their paces. Ah yes, Dublin’s St Patrick’s Day parade of the mid-1970s.
Where is Saint Patrick today when we need him? If you think using shamrocks to flog the Holy Trinity to bewildered P45-clutching druids was a neat trick, try rationalising the latest three-financial-institutions-in-the-one-central bank ruse.
Last Wednesday, the Central Bank split into what appears to be three separate organisations. This is an impressive transformation for the only species in modern evolutionary history to be threatened with extinction by an emu. There are now three central banks in the one central bank. Confused? Read on. There is the Official Central Bank, which is the unreconstructed, pure Central Bank that remains true to the cause and still speaks for the new splinter groups. This will go by the name of the Central Bank of Ireland and Financial Services Authority, or the CBIFSA for short.
We also have the Continuity Central Bank. This unit was, until recently, very active within the structure of the Old Central Bank and will now form the new reformed police force, keeping the warring financial institutions in check. The Continuity Central Bank will come under the direct command of the finance minister, rather than the chief of staff of the new Official Central Bank (otherwise known as the CBIFSA). The new wing will be known as the Irish Financial Services Regulatory Authority, or IFSRA, a simple acronym not to be confused with the CBIFSA.
Finally, we have the Real, or Coca-Cola, Central Bank, which can be regarded as the reforming wing of the Official Central Bank. This faction appears to be keen to maintain strong links with likeminded organisations on the continent. It will act as the eyes and ears of the European Central Bank or ECB, and will be henceforth known as the Irish Monetary Authority or IMA. The IMA will be answerable to the CBIFSA, but be clearly distinct from the IFSRA. (Rumour has it that the People’s Front of Judea will also be regulating offshore accounts.)
What all this nonsense ensures is that the command structure of the old, Provisional Central Bank remains more or less in place, and it is difficult to imagine what the various new wings will be doing. Take, for example, the IMA, which we are told will cover the following areas. It will:
n implement European Central Bank policy in Ireland
n liaise between the government and the European Central Bank
n produce currency
n manage reserves.
Now let us have a look at these in detail.
n Implement ECB policy in Ireland. What does this mean? From next January, the ECB changes interest rates in Frankfurt and we all trade in euros; there is nothing to implement. This is like having a representative in Killarney, in the old days of the Irish pound, to implement Irish central bank policy in Kerry. Come on lads, get real.
n Liaise between the government and the ECB. There is nothing to liaise about. The ECB is absolutely independent of any government, so there cannot by definition be anything to talk about. Although, having worked on the inside, I know that there are many junkets which would be lost by not liaising with Frankfurt, so I suppose for some members of the nomenklatura it is indeed ‘good to talk’.
n Produce currency. Now, this is a real job which is done in the Central Bank’s mint in Sandyford. But if it’s done in Sandyford, why doesn’t the CBIFSA do it and not the IMA? It begs the lightbulb question. How many central bankers does it take to print a fiver? Quite a few, by the looks of things.
But there is a more serious issue here. One of the key arguments during the Maastricht negotiations (when I was an economist in the department responsible for the Irish submission) was about whether the Europeans or the Irish would print the money. This is important because printing money is a great earner. It costs a fraction of its value to print a fiver and then, hey presto, it’s worth a fiver. The interest the Central Bank gets from the commercial banks that are prepared to pay a fiver plus interest for this new ‘invented’ fiver is cash free money. This free money is called seinorage in economic jargon, and was one of the sticking points in the behind-the-scenes Maastricht negotiations between national central banks and the ECB.
n Manage reserves. Now this is a fascinating one, because in a monetary union there is no need for any foreign reserves. Foreign reserves are held for one reason only: to defend, prop up or otherwise affect the value of the national currency. Clearly, when there is no national currency, there ain’t no need for reserves.
So the IMA looks like a bit of a cod. As for the IFSRA, when it comes to regulation, from Ansbacher to Dirt, the Central Bank’s record is far from pristine. And yet, by and large, the people working in the Central Bank are first class. Maybe it would have been better to take all the brains in Dame Street and relaunch the operation as a premier financial and banking consultancy to rival the ‘Big Five’. Given the new vogue for odd names such as ‘Accenture’ for Andersen Consulting, the people who came up with CBIFSA could have pushed the boat out.
Whatever happens to the new splinter groups, I hope one ritual remains the same. Nothing in my professional life has quite lived up to the pomp and ceremony of Dame Street’s mid-morning tea break. At around a quarter to eleven, the clank of the tea trolley could be heard clattering along the corridor. Everyone downed the Irish Times crossword and emerged from offices, mugs in hand ready for our 11 o’clock sacrament. Marietta biscuits were a favourite (butter oozing from their pores), as were chocolate Club Goldgrains, dunked in milky tea. Outside the world went by, currencies collapsed, banks failed and interest rates soared, but the ritual continued.
It’s a hard life looking after the nation’s money, banks and currency and anything else you care to mention. Here’s to Marriettas, St Patrick, shamrocks, Curlywurlys and job preservation.