Central bankers move from shadows to spotlight: Don Pittis

Whoever said monetary policy was supposed to be dull? Well not any more.

It's as if suddenlythe backroom boys and girls whose job it is to keep our financial systemsound have come out of the phone booth dressed as Superman. Or, depending on how their announcements affected you, a super villain like Dr. Destructo.

In the financial pages, of course, central bankers have always made news. But even there, the role has been more that of a quiet aristocracyor high priesthood, murmuring riddles that theiracolytesinthe business press interpret for the adept.

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An exception to that rule was Mark Carney, who with his media friendly looks and charm, risked making Canadian and then Britishmonetary policy after he moved to the Bank of England glamorous. Of course everyone in the central banking brotherhoodquickly learned the disadvantages of that once he became perilously closeto turning himself and his family into a page one tabloid star. Tut tut.

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But now, in a single week, three central bankers have attracted not justthe attention of the business press, but made the top of newscasts and appeared inblazing front page headlines in popular dailies.

Shock cut

"Shock rate cut sends loonie tumbling" blared a banner head in Toronto's biggest circulation daily the day after Bank of Canada governor Stephen Poloz'ssurprising announcement. The national Globe and Mail's headline, "THE CUT," was so big it barely fit across the width of the front page.

The latest to take the stage was European Central Bank president Mario Draghi. Everyone assumed he was going to join the U.S. and U.K. in so-called quantitative easing --increasing the money supply by buying up bonds. But even he shocked markets by announcing he would buy10 billion euros-worth more every month than anyone had expected. Bond rates and the euro plunged and stocks soared.

But most startling of all was a sudden and unexpectedmove at the end of last week thatcontinued to make headlines this week. That was when Swiss central banker Thomas Jordan announced he would no longer hold the Swiss franc peg to the euro. It was like pulling out the supports on a wall being leaned upon by hundreds of institutions and thousands of traders.

Fortunes lost

Swiss tennis player Roger Federer lost a fortune because his money was in euros. Currency brokerage firms around the globe went broke with losses of hundreds of millions of dollars. Swiss exporters and those who depend on tourism were shattered as buying in Switzerland became suddenly more expensive.

Generally, central bankers are not given to showmanship. So why three big splashes in a single week? And they weren't alone. Central banks inBrazil, Chinaand Denmark have also made big moves.I don't think it'smerecoincidence.

During the patching up after the financial crisis of2008, central bankers have beenwary of doing anything that would putnervous markets to flight. "Forward guidance" became the new policy, as the central bankers signalled what they would do in future, reassuring markets that any action would be slow and expected.

But in October of last year,Polozabandoned the forward guidance principle, calling it "addictive." But besides being addictive, it weakens the impact of any central bank move.

• Stephen Poloz says rate guidance is 'addictive' for markets

If everyone knows where interest rates and thereforecurrencies are going next, they complacently trade those currencies and take all the future moves into account. This is not how central bankers have operated in the past.

Sudden moves like those of Poloz and Jordan shocked traders who were complacently betting that the Canadian dollar and the franc would maintain their relationship, respectively, with the U.S. dollar and euro. The expectation that central banks will do something unexpecteddiscourages one-sided sure-thing bets for or against a currency.

Gnomes of Zurich

The other reason that central banks have taken a higherprofile may be that governments have lost control and credibility. The Swiss, who used to be the all-powerful gnomes of Zurich,have been overwhelmed by the new power of international banks. Europe is a house divided and could well become more soafter Sunday's election in Greece.

The U.S. executive and legislative branches are irreconcilable. In Canada, the country is also split as Prime Minister Harper's favourite child, theoil producing west, is superseded by the ugly sisters of the industrial east.

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Governments are afraid to redistribute wealth, afraid or unable to tax and spend, leaving them powerless to restart the economy. By default, the financial levers, the joystick of themoney game,fallto the central bankers --Super Stephen, Super Thomasand Super Mario.

All of which only make you nervous about what Bank of England's Carney and the Fed's Janet Yellenare planning to surprise us with at their announcements over the next two weeks. If the trend continues, hold on to your hats.