A template for a central bank leader

Dinner remarks by Mr Agustín Carstens, General Manager of the BIS, at the International Symposium on Central Bank Independence, Sveriges Riksbank, 10 January 2023.

It is a great pleasure, to speak to you in this celebration to honour Stefan Ingves. He has been at the very core of his country's central bank during remarkable times, and has been pivotal in at least two ways: strengthening an institution capable of meeting the obligations that come with independence; and anticipating the need to take the next step in the evolution of central bank money.

My remarks tonight will link three themes. First, the demands created by central bank independence; second, the need to ensure that central banks have the capacity to successfully meet these demands; and third, the role of leadership in all this. In Stefan, these themes intersect. He is someone who truly understands what it means when important responsibilities are delegated to the central bank, what that means for institutional capacity and what is required for effective leadership.

Everyone here tonight is used to the idea of central bank independence. It seems like a natural state, an elegant solution to the political problems that arise when monetary policy decisions have delayed gains but early costs. At the end of the day, granting independence to a central bank shows that society is convinced that it needs to have an institution within the state that ensures the stability of its currency's value; one that is vested with the instruments it needs to achieve its mandate; and one that is insulated from politics within the bounds and principles set out in the law. Ultimately, this means delegating responsibility for tackling an extremely complex problem to a group of experts.

Stefan Ingves seems to have figured all this out early in his career. He was aware from the start that having highly trained people dedicated to the study of their subject does not guarantee understanding. He came to the Riksbank with an aversion to overly simplified representations of how economies work. Economies are, he knew, full of dynamics that we can't always quite grasp, and which seem to change all the time. To lift ourselves out of crude barter states, humankind has devised many ingenious monetary and financial mechanisms. But these devices are complex, and rather prone to destabilising behaviours. Having been deeply embedded in Sweden's response to its existential banking crisis of the early 1990s, Stefan perceived all this with an unusual acuity.

This complexity and unpredictability creates the need to clearly and effectively communicate with society. In this regard, Stefan has pursued transparency – not spin, not public relations, not attempting to "manage expectations" but instead being open and honest – on the basis that being able to communicate with the public using plain language is vital to preserve faith in the institution. For a sample of Stefan's personal commitment to direct engagement with the public, look at a video of one of his public chat sessions following policy announcements, where he answers live online questions in plain language – provided that you understand Swedish, that is.

Stefan, of course, was not the Riksbank. The Riksbank has been around for over 350 years, and has never been about just one person. It is institutional expertise, institutional capacity that justifies the continuing delegation of policy authority, even as events repeatedly reveal the limits to our knowledge. Within the Riksbank, Stefan has promoted learning, readiness to act, and calculated risk-taking in order to make progress. He has encouraged staff to reflect on what problems they are there to solve. He has always advocated using technology smartly to build institutional capacity. He has been known, on occasion, to go down to the computer store himself to buy equipment for staff when the IT department has taken too long to deliver. I am guessing that, when this happened, he reminded the IT staff that sometimes they should "just get it done". This phrase – just get it done – is what we call a "Stefanism": short, to the point, extremely clear reflections of his thinking.

So Stefan is not the Riksbank, but leadership makes a difference. Leaders are there to foster institutional capacity, deploying their strategic vision in the process. Strategic vision is about lifting one's eyes beyond the immediate horizon, and working to develop an institution's ability to respond to new challenges. Let me illustrate Stefan's capabilities in this area with three examples.

• First, Stefan has long understood that setting the policy interest rate is not the be all and end all of a central bank's monetary policy task. Helped by a career path that includes the oldest continuing central bank and the IMF, he has kept in mind the history of money and monetary systems and the global diversity of monetary control mechanisms. These have made him quicker than most to appreciate the range of instruments that can be useful and efficient in central banking. This appreciation rightly makes him nervous about limiting the instruments in the toolkit just to those suited to peaceful times. A Stefanism that we all agree with is: "at some point, a central bank will need to use the full extent of its balance sheet".
• My second example concerns the Riksbank's exemplary engagement in international forums, including forums that we at the BIS facilitate and in which Stefan himself has excelled – I'm speaking here of his chairing of the Basel Committee and the BIS's own Banking and Risk Management Committee. The benefits for the Riksbank and for Sweden were by no means immediate or obvious for all to see. But, as Stefan maintains, without some incentive, nobody but the Swedes are going to look after Sweden. Sweden's influence on the rest of the world, and thus on its own future, will not be very large if it rests just on Sweden's economic weight. To punch above that weight, Sweden needs to be proactive and engaged. And this helps to explain Stefan's insistence that the Riksbank "be perceived as a constructive participant in the international arena".
• My third example concerns the future of central bank money. Stefan was way ahead of most of us in grasping the need to be flexible about the technology of central bank money. The waning use of paper money by Sweden's public may have helped him towards that conclusion, to be sure. But Stefan's early initiatives to evaluate e-money also demonstrates a flexibility of thinking, and a willingness to embrace change. In any event, I'm told that Stefan went to Cecilia Skingsley as early as 2014 to ask her to start thinking about a critical what if – what if the product we currently provide no longer fulfils our obligation to provide a reliable means of exchange? When central bank e-money became one of the possibilities to consider, Stefan met resistance, even from some of his colleagues. The Stefanism that comes to mind here is: "my job is to produce money that people want to use!" Many of us have come to appreciate the implications of that remark.

These examples show a leader with strategic vision – a commodity that is in short enough supply. But what is particularly special in Stefan's case is that he combines both vision and action. This combination of long-term strategic thinking and willingness to act is exactly the one that is required of leaders, and especially of central bank leaders. Many people associate central bankers with deep thinking, reflection, careful analysis, the methodical working through of problems in search of lasting solutions. This is all valid, but the world in which central bankers work is increasingly characterised by mode-switching. By this, I mean, for example, the sort of dynamics in which mode-switching in the inflation process could take place – the contrasting dynamics of self-stabilising low inflation regimes and of unstable high inflation ones. And I also mean the mode-switching in financial crises in which bubbles expand – seemingly without bound – then burst, seemingly to everyone's great astonishment. In a mode-switching world, strategic vision means anticipating the need to act, heading off emergent problems before they morph into disasters, and ultimately responding with vigour when it is required. In a mode-switching world, leaders like Stefan Ingves are needed. Stefan, you will be missed as you switch into retirement mode. But we fervently hope you will be emulated, often and everywhere.