Issue link: https://maltatoday.uberflip.com/i/1161128
29.08.19 11 INTERVIEW banks. So, we need to continue encour- aging banks to invest more in KYC, but reminding them that they also have to continue adhering to their social respon- sibilities. With the ECB in place, does the Bank retain its autonomy or is it a mere rubber stamp for its European-level counterpart? Why do we still need national central banks? e Bank is one of 19 banks of the euro area, which has a common monetary policy. But this policy was designed by all the EU19, and the rules give one country one vote on all matters. at may look like a cumbersome process, but there's no alternative to it. It is true that upon Malta's accession to the EU and after the adoption of the euro, the Bank lost some of the auton- omy it enjoyed in the past. is is be- cause, as a member of the Eurosystem, in key domains such as monetary poli- cy it is subject to the decisions taken by the Governing Council of the European Central Bank. One could also argue, however, that the Central Bank of Malta's autonomy in the monetary policy sphere was limited in any case since the conduct of mon- etary policy was based upon a pegged exchange rate, which implied that the Bank always had to take into account the monetary policy stance of those coun- tries whose currency was included in the Maltese Lira peg, which was predomi- nantly the euro area. Although adoption of the euro implied relinquishing a degree of autonomy, from a national perspective it allowed Malta to benefit from membership in a power- ful single currency area. One could say that the euro adoption was a critical fac- tor behind the recent successes enjoyed by the Maltese economy, especially the growth of the services industry. Moreover, I think the ECB essential- ly saved the euro since the 2007/2008 financial crisis. e slogan coined by Draghi – "We'll do whatever it takes" – has really meant doing all that it takes. Not all countries jumped for joy at this, and some governments had strong re- actions to the ECB's policies. But the ECB stood its ground, and we should be thankful for this. is said, everything isn't all smooth when it comes to monetary policy. ere were moments when some said the ECB was encouraging populism through its policies. I think nobody takes these claims seriously any more, but there does exist such a thing as populism. Regarding the second and third parts of your question, the Bank, as with oth- er national central banks of the euro area, is not a mere rubber stamp. On the contrary, it participates fully in the deci- sion-making process of the ECB. In par- ticular, the Bank's Governor is a member of the Governing Council of the ECB, with full voting rights according to its Statute. National central banks play a key role in the formulation of monetary policy in the euro area. In this context, they bring valuable knowledge of their own economies and financial systems to bear. Moreover, the implementation of mon- etary policy is decentralised, meaning that the Central Bank of Malta is respon- sible for carrying out all monetary policy operations in Malta. is includes the operation of standing deposit and lending facilities for Maltese banks, regular open market operations and asset purchases. e Bank also plays an important role in managing part of the ECB's foreign reserves, in running and overseeing pay- ment systems, in issuing euro banknotes and coins to the public and in safeguard- ing financial stability. In some respects, national central banks' independence is better protected inside the European System of Central Banks (ESCB) – which consists of the ECB and the national central banks of the member states – than outside. is follows from an explicit prohibition in the law against external interference in day-to-day decisions and operations and the monetary financing prohibition. National central banks carry out tasks other than those pertaining to the ECB, as long as there is no conflict between them. For example, national central banks may act as lender of last resort to banks in need of emergency liquidity. The Bank recently set up a social research unit and has also completed an agreement with Queen Mary University of London (QMUL) on an academic visitors' programme. How important is research for the Bank? e Bank engages on a regular basis with both Maltese and foreign scholars. It has a well-established internship pro- gramme which is open to both Maltese and foreign students. We hosted PhD students from Belgian, Italian and UK universities in recent years. e agree- ment with QMUL is meant to further this interaction with foreign scholars and in this way ensure that our staff re- main abreast of the latest academic de- velopments in economics and financial analysis. e agreement recently signed with QMUL is just one of a number of initia- tives. For instance, in September we will be organising two short courses on mon- etary policy and macroeconomics with the University of Nottingham, which will be attended by central bankers from the EU, the Middle East and Africa. Earlier this year we hosted a US Pro- fessor from the University of San Diego who visited as a Fulbright scholar to help develop our understanding of the behav- iour of house prices. We also have a technical cooperation agreement with the Bank of Italy, which is enabling us to enhance our macroeco- nometric models. e Bank also organises a comprehen- sive range of lectures and conferences on topics which are not always directly re- lated to the Bank and its sphere of oper- ations but also to literature, heritage and culture, for example. A full list is availa- ble in the annual report. Research is essential for a central bank. If you look at the Bank's track record for the last three years, it is evident that the social research unit – which was set up recently – represents just a fraction of the Bank's research, but it is also an in- novation. Central banks need to be able to assess the social impact of monetary policy and of measures put in place to stabilise the financial system. It is therefore important that a central bank has the necessary competences to assess the impact of policy which goes beyond economics and into the social sciences. Operating without research is akin to driving a car at night without the head- lights on. The Bank has just set up the Central Bank of Malta Foundation. In the Bank's official statement, it said the Foundation would be "administering funds intended to support projects of a national stature with lasting visibility". Why did the Bank feel the need to set up its own foundation when there are already numerous others doing stellar work? e aim is clearly to align the Founda- tion with particular sectors in which the Bank has already been active for many years, such as education, culture, scien- tific research, preservation of Maltese national heritage and social causes. All that has happened is that it has now been put on a formal basis as foundation under the relevant law. e Foundation is basically doing what the Bank has been doing for a long time. e setting up of the Foundation is to ensure there is more transparency and accountability in the way the Bank funds certain initiatives. e Foundation has an autonomous board, chaired by art historian Fr Marius Zerafa. Malta is blessed to have such a strong corporate social responsibility presence but there are undoubtedly areas where the Bank can and will make a contribu- tion. By way of an example of initiatives the Bank supports, the Malta Philharmonic Orchestra (MPO) comes to mind as one of the most important causes. Malta's economic success