"Fischer inherited an independent Bank of Israel, but bequeathed a non-independent Bank of Israel," said Dr. David Klein, Stanley Fischer's predecessor as governor of the Bank of Israel, at the Israel Economic Association’s Annual Conference in Tel Aviv today.
Klein said that his analysis of the new Bank of Israel found that it restricts the central bank's independence because the foreign currency purchasing policy that Fischer initiated requires the Bank of Israel to consult with and obtain permission from the finance minister. Before the new Bank of Israel Law, the finance minister was not involved in any Bank of Israel decision.
"11 of the 97 articles in the new Bank of Israel Law mentioned the finance minister. In the previous law, from 1954, he is nowhere mentioned. The fact that it is necessary to consult with him on every issue harms the independence of the Bank of Israel," Klein claims.
"In a speech Fischer made in 2008, he asserted, 'There has been little progress since the non printing law.' Fischer is wrong. The supervision of foreign currency law, the makam law, and the fixed exchange rate law were all laws that restricted the Bank of Israel, and they were all abolished in the Frenkel-Klein era," added Klein in his attack on Fischer, who now serves as Vice Chairman of the US Federal Reserve.
This is not the first time that Klein has lambasted Fischer. In a new book, due to be published soon (The eighth governor of the Bank of Israel Stanley Fischer: What he inherited and what he bequeathed", published by Ofir Bikurim), he writes, "The Achilles heel of the eighth governor was the hubris to manage the exchange rate over time by unlimited purchases of foreign currency, with no proven advantage and at high cost, which involved keeping a real negative interest rate for a long time, inflating real estate prices," he says in summary of Fischer's policy between May 2005 and June 2013.
"The real estate bubble that Fischer created has distorted banking supervision policy on the assumption that this is needed to protect their stability, and strengthened the governor's inherent tendency to avoid steps to promote competition in the financial services sector in general and in the banking sector in particular," says Klein.
Klein, who served as Governor of the Bank of Israel in 2000-04, believes that the reason for Fischer's mistakes was "an American reality from which Fischer drew much inspiration, usually without thinking about the differences between the Israeli and US economies."
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2014
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