Lars HeikenstenMember of the European Court of Auditors,

former Governor, Sveriges Riksbank

How to reform a central bank –issues related to governance

and management

Forces behind the changes

• Deregulation• Internationalization of markets, systems

etc. • Technical change • Transparency/Accountability • Credibility • Independence

“Staff, Functions, and Staff Costs at Central Banks”, Jorge E. Galán Camacho & Miguel Sarmiento Paipilla

“Danmarks Nationalbank’s operating costs and number of employees ibnan international comparison”, Erik Haller Pedersen

The essential changes

• Efficiency - focus on the essential

• Professionalization /more academics

• New governance structures

1.Taxpayers money. Link to independence. Lead by example

2.The core functions? Law, analytical approach etc.

3.Form a strategy. Use opportunities. Delegate within frames

4.Openness a tool

Efficiency and concentration

• Monetary policy management

• Financial stability/supervision

• Lender of last resort

• Foreign exchange and reserves management

• Payment and settlement systems

• Currency and coin management

• Fiscal agent

Can be discussed.

Core functions

Central Central Bank /Bank /

FunctionFunction

Financial Financial SupervisioSupervisio

nn

Currency Currency OperationsOperations

Banknote Banknote PrintingPrinting

RPS OperationsRPS Operations LVPS LVPS Manual Manual

OperationOperation

Coin Coin MiningMiningAutomateAutomate

ddManualManual

2000 2000 20042004

2000 2000 20042004

2000 2000 20042004

2000 2000 20042004

2000 2000 20042004

2000 2000 20042004

2000 2000 20042004

AustraliaAustralia

AustriaAustria

BelgiumBelgium

CanadaCanada

CyprusCyprus

DenmarkDenmark

EnglandEngland

FinlandFinland

FranceFrance

GermanyGermany

GreeceGreece

Hong KongHong Kong

IcelandIceland

IrelandIreland

IsraelIsrael

ItalyItaly

JapanJapan

KuwaitKuwait

LuxembourgLuxembourg

NetherlandsNetherlands

New ZealandNew Zealand

NorwayNorway

PortugalPortugal

S. KoreaS. Korea

SingaporeSingapore

SpainSpain

SwedenSweden

SwitzerlandSwitzerland

USAUSA

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Operational Functions performed by CB (2000, 2004)

1. Need for analytical frameworks

2. Raise academic levels and standard of research

3. Cultivate all functions

A professional organization

1. Reasons behind boards and MPC:s

2. Difficulties for management

3. Clear lines of responsibility/delegation

4. One size does not fit all in communication

New governance structures

• Analyze current objectives. Refocus them towards the most appropriate ones: price and monetary stability. Basis for time-limited (e.g. 3 years) strategy document.

• Review current functions by breaking down operations in processes. Bench-mark. Involve those responsible in the work. But set direction.

• Historical reasons for many functions. Eliminate non-core functions through sales, transfers or close downs.

• Develop core functions. Improve analytical and communicative skills. Aim for high standard in remaining support functions.

• Continuous review though comparisons with models or benchmarking with other central banks. Communicate and getideas.

• Never forget that we are talking about tax payers’ money.

Summary and conclusions