Introduction to Andrew Bailey
Andrew Bailey is a Bank of England “lifer” who celebrated his 40th year at the central bank last month. When he joined, monetary policy decisions were still made in conjunction with the government, and the Bank in 1985 remarked on the UK economy’s 3 per cent growth rate, “buoyant investment” and the benefits of rising external trade. This is a far cry from today, where decades of trade liberalisation are under threat from President Trump, the UK economy can barely generate growth above 1 per cent, and investment has flatlined since the Brexit vote.
Bailey’s Career and Experience
Bailey’s career makes him one of the most experienced financial and monetary policymakers in the UK. However, his CV, he says, is marked by “terrible timing”. In 2007, he was in charge of the Bank’s resolution unit designed to wind up failing lenders on the eve of the financial crisis. He became governor in March 2020 just as the world was plunged into a once-in-a-generation pandemic, followed by an energy crisis that conspired to generate the highest rates of inflation the UK has experienced since the early 1980s.
Challenges as Chairman of the Financial Stability Board
This month Bailey became chairman of the Financial Stability Board, a multilateral organisation set up after the 2008 crash to co-ordinate responses to market turmoil. He takes the job as the Trump administration promises a wave of banking and financial deregulation and is ripping up the rules of multilateral co-operation on trade, taxation, climate change, and the dollar-dominated financial system. “Mark Carney had a much easier time when he was chair of the FSB,” Bailey says, a reference to his predecessor at the Bank, and a recognition of the challenges of promoting co-ordination in the age of Trump.
Relationship with the US Treasury Secretary
The governor says he has spoken to Scott Bessent, US treasury secretary, who has “assured” him that the US is “supportive of what the FSB is doing”. The administration has “no stated intention” to quit the organisation, after making a similar commitment to remain part of the International Monetary Fund and the World Bank this year. Bessent, a former Wall Street trader who bet against the pound on Black Wednesday in 1992, has criticised the wave of post-crisis financial regulation as “backward looking” and has chafed against global regulators making rules for US lenders.
Warning on Stablecoins
Bailey has sounded the alarm over Trump’s enthusiasm for stablecoins, a form of digital currency that is backed by traditional assets like the dollar. The governor questioned the White House’s “enthusiasm” for crypto assets, which he says pose financial stability risks and even threaten the nature of money if giant banks begin to issue their own stablecoins. Unlike traditional cash deposits, which are covered by government insurance schemes, stablecoins are not guaranteed to trade one-to-one against the dollar.
The Dollar’s Position as a Global Reserve Currency
Bailey said the dollar’s position is not yet under serious threat but maintaining its unrivalled status means the Trump administration cannot call into question the provision of emergency dollar funding, known as swap lines, that were used to stem financial panic in the rest of the world in 2008 and during the pandemic. “My answer to the US administration is, you want the dollar to remain as the global reserve currency and we all really like it because we don’t want instability. Swap lines are part of the dollar being the reserve. That is a sort of insurance on liquidity. This is actually about embedding the dollar’s position.”
Bailey’s Background and Expertise
Bailey’s background will serve him well at the FSB as it did during the standout crisis-fighting moment in his governorship: the financial mayhem in 2022 after Liz Truss’s mini-budget. The Bank made a targeted intervention in the bond market to help out stricken pension funds that were caught on the wrong side of a brutal sell-off in gilts. Bailey’s response has been praised by the International Monetary Fund and the central banking fraternity as a model in how to deal with sudden financial scares without threatening the primary goal of controlling inflation.
Monetary Policy and the Bank’s Decisions
The Bank has not delivered the speed of interest rate cuts that Labour were hoping for after last year’s general election, adding to the government’s fiscal and economic woes. In recent weeks, Bailey has sounded decidedly more concerned about slowing employment and softer wage growth, raising speculation that the Bank will reduce rates to 4 per cent next month. The governor is also presiding over a historically divided monetary policy committee where votes often split three ways between its nine members.
Conclusion
In conclusion, Andrew Bailey’s experience and expertise make him one of the most qualified individuals to lead the Bank of England and the Financial Stability Board. His challenges as chairman of the FSB are significant, particularly in relation to the Trump administration’s deregulation plans and the potential threat to the dollar’s position as a global reserve currency. However, Bailey’s background and expertise will serve him well in navigating these challenges and promoting financial stability and cooperation. As the Bank of England continues to navigate the complexities of monetary policy and financial regulation, Bailey’s leadership will be crucial in ensuring the stability of the UK economy and the global financial system.
