In both China and Russia, significant political and social changes have necessarily created challenges to the countries’ respective economic policies and practices. In both China and Russia, central banks have attempted to assert their autonomy, independence, and authority, but the scale and scope of responsibility is so vast and complex that initial efforts to effectively manage the economies are praiseworthy yet in need of further refinement. Fraser (1994) suggests that rather than initiating massive, immediate, and forceful changes, to which domestic and foreign interests alike will be forced to adapt, countries that find themselves in situations such as China and Russia are experiencing in these transitional moments should practice incremental economic change by setting “intermediate targets [which] have provided a valuable compass for monetary policy settings” in other countries (p. 4). Citing the example of Hong Kong, Fraser (1994) contends that following an incremental stage model of economic policy change will serve multiple functions, including establishing the credibility of the central bank with domestic and foreign stakeholders alike.
Clearly, there is not a one-size-fits-all policy solution for China that can also be applied to every country. China and Russia, as the individual case studies demonstrated, have distinct political, social, and economic histories and contemporary realities. Both are post-communist societies, but one negotiated its transition from communism to greater world engagement far more effectively than the other. One is enjoying exponential growth that is unprecedented and could have been hardly imagined in years past, while the other is struggling with determining how best to exploit its natural and human resources and political relationships to its economic advantage. The incidents of corruption that are so rampant and so egregious in each country highlight that transitional moments are not without significant challenges. It may be difficult for governments, central banks, and the various other stakeholders which it affects to understand, negotiate, and accept the changes that are occurring. However, the potential benefits of establishing a strong and stable central bank have been substantiated both by research literature and by experiential reports.
In addition to Fraser’s suggestion of incremental change, other strategies could have been employed prior to the current moment. Central banks could have entered their own transitional period during which they would be incrementally disconnected from their government obligations, responsibilities, and relationships. They could have been given a charter and “the freedom to pursue it” (Fraser, 1994, p. 3). Under such a plan, the government could have retained responsibility for establishing goals and benchmarks, while the central bank could have been charged with the authority and expectation to implement the goals through methods of their own choosing (Fraser, 1994). These are only suggestions that could facilitate smoother transitions. As Fraser (1994) concludes, “There are no universal rules… but each country must establish the… framework for its central bank,[and] allow for its evolution in ways which best fit that country’s own history and institutions” (p. 6). Finally, Fraser (1994) suggests that the government and the central bank define the terms of dependence and independence: there is political independence, economic independence, and legal independence, to name just three characteristics that define the relationship between a government and its central bank.
Russia has been undergoing major political and social changes in recent years and as one might imagine, the banking system in Russia reflects this sense of flux. The post-communist period in Russia has facilitated its entry into a more expansive market and it has attracted greater investment, though not to the degree or extent that might have been desired. As Russia moved from a communist government to the new political structure, there was an industrial collapse that impacted the country’sGDPnegatively (Castell, 1998). Castell (1998) added that Russia had rigorous economic “adjustment policies” during the transitional period that did little to relieve the massive poverty of the Russian people. Nevertheless Castell (1998) predicted that Russia would be able to make a relatively rapid recovery and surge ahead in the international economy and markets because of the country’s “preeminent position… in energy, natural resources, rare and precious metals, its scientific potential, its educated population, its unabated geopolitical significance, and the promise of a potential 300-million-person consumer market in the lands of the ex-Soviet Union, still gravitating around Russia” (p. 66).
As a result of the political and governmental changes, significant economic, social and even environmenal changes for China have necessarily followed. Although these changes have been far less dramatic and intense than the changes documented in other nations in similar political circumstances, Cukierman, Miller, and Neyapti (2002) contend that some of the most ambitious bank reform efforts have occurred in the former Soviet Union nations, and these efforts have yielded impressive results. One of the most important economic changes that occurred in the early 1990s was the establishment of a wholly independent central bank, the Bank of Russia, which was charged by the Russian constitution with developing policies and practices to ensure the stability of the ruble. The Bank of Russia also maintains responsibility and authority for printing and issuing the country’s currency. The bank is not entirely divorced, of course, from the interests of the Russian government. In fact, since the granting of independence, it seems that the government and the bank are better partners than ever (Export-Import Bank of the United States, n.d.).
Despite the separation of the central bank from the direct oversight and supervision of the national government, corruption is becoming as serious a concern in Russia, although in a different way than the bank of Russia used to experience. The Yukos scandal of 2003 was cause for particular concern, drawing attention to the problems that independent central banks have in establishing their own autonomous authority once they have cut direct ties with the government. A more recent case, from this week, reveals some of the specific concerns related to corruption. In a Business Week (2007) article, Russian tax officials were charged with “demand[ing] confidential information about clients without a legal basis” (para. 4). One of the particular concerns that is emerging as a result of the transition to an independent banking system is the potential that the central bank will develop and implement policies that will be harmful to the economy. A recent central bank proposal, for example, called for legislation that will force auditors to “require them to report potentially suspicious activity by their banking clients to the Central Bank” (Business Week, para. 4). This legislation, while pending, if passed into law could cause major trust issues between the central bank and the Russian people, as well as between the central bank and international investors. TheBusiness Week article also contends that Russian law is “fickle,” a fact which will also be likely to make international investors wary of initiating business operations and relationships in Russia (para. 5-6).
China and Russia are compelling case studies for understanding issues related to the historical and contemporary roles that central banks have played in national and international economic relations. Considering that both countries have undergone significant transformations of their governments and their very societies, it is not surprising that their economic systems have also undergone equally dramatic transitions. Both countries have made impressive strides in reconfiguring their central banks and determining their relationships to the government, taking into consideration historical variables and contemporary concerns. However, given that both countries are still in the midst of negotiating the scope of the changes that each is experiencing, the opportunities and challenges presented to central banks are far from being resolved neatly. Corruption is a major problem that is common to both China and Russia, and the central banks will need to play a meaningful role in establishing their authority without alienating business and individuals, whether domestic or foreign. While both countries face continued challenges, the possibilities are also exciting. It will be interesting to continue monitoring these two countries as they mature within their new systems to determine how their central banking systems will continue to evolve.
References
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