Who Runs The Central Bank Now?

The ruble has just crashed causing what the president of the country declared a "threat to national security," yet the Central Bank chairman, although sacked, is in London, his confused deputies have failed to show up at work and the prime minister has decided to stay away on holiday in Sochi.


What is wrong with this picture?


True, Russia's leaders have to grapple with a new constitution and indeed a new world, so some slippage in policy-making has to be expected. But something deeply irrational and, to use President Boris Yeltsin's words, "grossly irresponsible" is going on here. Who for example is now making the Central Bank's decisions on currency intervention? The janitor?


So far, the only real response to the ruble's crash -- which took place a week ago -- has been to slap on some trading restrictions and unleash the former KGB against alleged culprits in the debacle. The Central Bank has been spending whatever hard currency reserves are needed to keep the ruble rate artificially high, but that is a bandaid applied where major surgery is needed. The surgeons, meanwhile, are nowhere to be seen.


Perhaps it took just this kind of crisis to prompt commercial bankers to speak wistfully of Viktor Gerashchenko, on the principle that in time of crisis a bad Central Bank chairman is better than none at all. But at the highest levels of government there is a surreal quality to the aftermath of "Black Tuesday."


The president's office apparently is uncertain whether or not Gerashchenko is definitively gone. So are those minions at the Central Bank who went to work Monday. The parliament is unsure of whether to debate accepting his resignation or to just leave the entire matter in Yeltsin's hands. And the government is presumably keeping its fingers crossed that its depleted hard currency reserves do not run out while it is propping up the ruble. Meanwhile, the Kremlin has both overreacted -- by setting out on a witch hunt for fantasy saboteurs -- and remained culpably passive by failing to look for the true, economic, causes for the ruble's sudden demise. That, after all, is the only way that a repeat of Black Tuesday can be avoided.


There are important underlying economic reasons behind the ruble's collapse and the president's finance team should now be working to identify and correct these -- not the Federal Counterintelligence Service. All that the former KGB can possibly accomplish is to criminalize commercial bankers for doing what they are supposed to, namely make money.


In fact, perhaps the next Central Bank chairman should be whichever commercial banker the counterintelligence service fingers as responsible for the crash. He, at least, is likely to understand the true causes of the ruble's fall.