Analysis: Not going anywhere

Stanley Fischer is leaving an indelible mark on Israel’s central bank, and his influence will be felt long after he’s gone.

Stanley Fischer 311 R (photo credit: REUTERS/Baz Ratner)
Stanley Fischer 311 R
(photo credit: REUTERS/Baz Ratner)
When Bank of Israel Gov. Stanley Fischer announced on Tuesday that he would step down, Israel and its markets panicked.
According to Bloomberg, Israeli stocks traded in New York dropped to a one-month low, bond yields rose, and the cost of default “insurance” jumped 126 basis points, the market equivalents of a spooked skunk spraying. Knesset Finance Committee chairman Moshe Gafni voiced fears over the “dramatic” resignation, and Nobel Prize winner Robert Solow said he couldn’t imagine how Israel would replace him.
There is no question Fischer brought a sense of prestige and certainty to the position; few people can claim to have taught US Federal Reserve chairmen (Ben Bernanke studied under Fischer at MIT), and Fischer literally wrote the book on macroeconomics (more precisely, he co-wrote a widely used textbook on the subject).
A renowned scholar and former IMF and World Bank executive, Fischer brought gravitas to the position, signaling that anyone concerned about Israel’s monetary policy could keep calm and carry on.
Yet there are several reasons that Fischer’s departure should not be so worrisome. First and foremost is the fact that the Bank of Israel is only responsible for setting part of Israel’s economic policy: its monetary policy. Other than that, its head’s main role is to advise the prime minister and finance minister, who have far greater power to affect the economy through fiscal policy, tax decisions, rules, regulations and legislation.
“He’s an adviser. He doesn't have an executive role,” former BoI governor David Klein told Army Radio on Wednesday.
“I think we’ve created too big a storm around the governor stepping down,” said Federation of Israeli Chambers of Commerce President Uriel Lynn. “I'm not saying he’s not important; he provided a great service to Israel and our economy.
But we’re overblowing the whole thing, as we often do in Israel.”
But just as important, the central bank Fischer is leaving is not the same one he inherited.
He touts the 2010 Bank of Israel Law, which bolstered its independence, as one of his greatest accomplishments. Few people would seek to reduce their own power, but Fischer pushed for the bank’s most influential decisions, setting key interest rates, to be decided by a seven-person committee including three outside academics.
Aside from bringing Israel in line with most advanced central banks, the law also limits the damage a rotten choice for governor might do further down the line.
Furthermore, Fischer’s tenure in the role helped depoliticized it. “In the past, Israeli governors were attacked,” said Lynn.
“They were very easy prey. Finance ministers blamed them for everything. I can assure you that if an Israeli economist came in and did what Fischer did, they would have torn him apart. But with Fischer, it seemed improper.”
After eight years of, for the most part, leaving Fischer alone, politicians’ attitude toward the independent role of central banker in Israel may have evolved for the better.
Even had he decided to complete the last two years of his second term, working steadfastly until the age of 71, he still would not have been able to stick around forever. “People who bought 10-year bonds yesterday thinking the governor would be here for the next 10 years were not well-informed,” Fischer joked on Wednesday, brushing aside the negative market reactions to his announcement as a temporary dip. “I’ve done what I had to do, and I believe that the changes we’ve made to the Bank of Israel’s structure will give people confidence that whoever comes after me will be able to continue to run the bank very well.”
Well aware that all things must come to an end, Fischer made sure to institutionalize his professionalism and experience before handing in his resignation.
In that sense, he will remain a part of the Bank of Israel long after he walks out the door.