| 21.1.2008 |
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| Address by the Governor of the Bank of Israel, Professor Stanley Fischer, at the 2008 Herzliya Conference |
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| The Governor said today at the 2008 Herzliya Conference, that no more time should be wasted talking about the new Bank of Israel Law; the time had come for all concerned to roll up their sleeves and to get on with completing the Bill and passing it as soon as possible. That would signify the completion of the final and important step of the integration of Israel’s economy into the global economy. It would constitute an important achievement and provide an indication of the maturity of Israel’s economy, since the existing Law is outdated and is not compatible with the accepted norms in the global economy. |
| The enactment of a new, modern Bank of Israel Law is an important step along the path towards the globalization of the economy, which has not made significant progress in that direction till now. The Governor noted that the government made a decision in October 2005 to adopt the principles of a new Bank of Israel Law, in line with the recommendations of the Levin Committee and developments in that area around the world. He added that the new Law must be based on the standards accepted in the advanced economies, and must create the right combination of independence, transparency, and public oversight of policy. |
| The Governor outlined the principles underlying the new Law. |
| The Bank of Israel’s independence: The Bank will be independent in making decisions on the interest rate and other policy matters, and on management issues, as required for it to fulfill its functions and to meet its targets. Central bank independence makes an important contribution to the achievement of low inflation without harming growth long term. It thus constitutes a weighty consideration among domestic and foreign investors in deciding in which countries to invest. |
| Central bank independence around the world covers the areas of their responsibility––interest rate policy and management of the bank––to ensure that they can make decisions independently of the government, and in particular of the finance ministry, which is a political entity, like other ministries, and an economic agent of the government. The Governor stressed that fruitful cooperation between the Bank of Israel and the Ministry of Finance in the last few years, but observed that every law must prove itself in any situation. |
| The Bank of Israel’s targets: The Bank’s targets must be clear and known, so that it can set its policy in accordance with them and the public can judge its success. The approach that should be adopted is the generally accepted one of setting three targets: (1) to achieve and maintain price stability; (2) subject to the first target, to support the government’s other economic objectives, headed by growth and employment; and (3) to underpin the economy’s financial stability. |
| The mechanisms for decision making: (1) Decisions on the interest rate and other policy issues will be made by a Monetary Committee, headed by the Governor. Some members of the Committee will come from within the Bank, and will include the Deputy Governor, and some from outside the Bank. |
| Decisions relating to the management of the Bank will be made by an Administrative Council, which will have an absolute majority of external members, one of whom will head the council, with the Governor and Deputy Governor also serving as members. The council will be responsible for approving work plans, the Bank’s budget and wages, and the appointment of an audit committee from among its external members only, etc. |
| To ensure the independence and the professionalism of the Bank, the external members of the Monetary Committee and the Administrative Council will be experts in the relevant fields, free of conflict of interests, and independent of the government and political institutions. |
| Transparency and accountability: The Bank’s decisions, policy and achievements will be transparent, and it will have to report on them to the Knesset, the government and the public. It will present the reasons for its decisions, the relevant information that was available, its forecasts and its assessments of expected economic developments. It will do this by means of published inflation reports and other periodic reports, summaries of the discussions of the Monetary Committee, fundamental decisions of the Administrative Council, press releases, etc. |
| The transparency and accountability of the Bank of Israel is part of public control of its activity and policy, alongside its independence, and constitutes a permanently open channel of communication between the Bank and the public and the financial markets, through which it will be attentive to public criticism and the public will better understand its roles, policy, decisions and achievements. To this end the Bank of Israel has already extended its transparency and accountability beyond the current legal requirements; nonetheless, this issue should be incorporated in the new legislation. |
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