The role of central banks as providers of “non-partisan expertise” has only been made more important by political developments such as the election of Donald Trump as US president, the UK’s decision to leave the European Union and the rising influence of populist leaders in Europe, according to Donald Kohn, former vice-chair of the US Federal Reserve.
Kohn – the recipient of Central Banking’s Lifetime achievement award, who worked at the Fed for 40 years, including sitting on the board of governors from 2002–10 – says central banks must work hard to ensure they are viewed as a trusted provider of essential services to the general public.
Kohn’s near half-century of public service covers a period when central bank earned “well-deserved reputations” for their “non-partisan expertise” and have long been “among the most respected institutions in public life”. But these reputations were “dented” when they “didn’t see the global financial crisis coming or the full difficulties of recovery”, he tells Central Banking.
Nonetheless, Kohn points out that many central banks were still entrusted with “maintaining financial stability alongside price stability” in the post-crisis world. The big challenge for central banks in the future, he adds, is to “improve performance and public regard” by “learning from the past”, “developing and acting on the expertise required to carry out new responsibilities”, and “improving our ability to explain our actions to the public and be held accountable for them in democratic institutions”.
Achieving these aims will not be easy, especially as populist leaders continue to blame unelected public officials and bureaucrats for continued sluggish economic growth.
Kohn called on central banks to meet the challenges they face “in an increasingly rancorous political environment”, adding that this “only enhances both the need for institutions, like central banks, of unquestioned non-partisan expertise, but also makes achieving and maintaining that status even more difficult”.
Kohn won Central Banking’s Lifetime achievement award for his tireless public service, which included providing guidance to five US Federal Reserve chairs and at least one Bank of England governor. His years of service at the Fed meant he was heavily involved in efforts to win the fight against inflation, improve transparency and refine the targets of an operationally independent central bank. Indeed, his career charts the emergence of de facto independent central banks’ pursuance of policy targets.
Kohn also played a vital role in efforts to shore up the US and global financial system during the darkest days of the global financial crisis. “He was frequently described as a calm and reassuring presence by his domestic and international peers at the height of the global financial crisis, when he worked tirelessly to ensure decisive action while also looking out for possible unintended consequences linked to unconventional policies,” says Central Banking Awards Committee chairman Christopher Jeffery. “It is something for which he is owed a considerable debt.”
After stepping down as vice-chair of the Fed in 2010, Kohn continues to influence central banking, notably in the area of financial stability. He has served as a member of the Bank of England’s Financial Policy Committee since 2011.
“While some will not agree with all of his policy leanings, nobody could doubt Kohn’s sense of purpose and commitment,” says Jeffery. “His objectivity, intelligence, tireless energy and iron will to get the job done epitomise the role of a dedicated public servant. As a result, his record of service stands as an inspiration to other central bankers around the world.”