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Interview with Andy Haldane: Former Chief Economist and Executive Director for Monetary Analysis

Interviewed by- Amit Gad, (Co-Head of External Relations, TheJuniorIB)

Mr. Andy Haldane, - Current Chief Executive of Royal Society of Arts, Former Chief Economist and Executive Director for Monetary Analysis

Firstly, I would like to thank Mr Andy Haldane for agreeing to conduct this interview. Mr Haldane has worked as the Chief Economist and Executive Director for monetary analysis and statistics at the Bank of England and he is currently the chief executive of the Royal Society of Arts (RSA).

I would like to first ask what led you to a career in the civil service and specifically to monetary policy?

Yeah, so it goes quite a long way back. So I grew up in the north of England, in Yorkshire, a long time ago, you hadn't been born, Amit. So way back in the early 1980s, the UK was going through a recession, quite a deep recession. 3 million people are unemployed. And the effects of that were very visible, you know, where I was growing up and across the UK. People without jobs, families struggling, and communities struggling. So it was that that started my interest. And I was probably 13-14 Around the time. And those questions about how could that happen? And how can we stop it from happening, which drew me first into studying economics at A levels and then going on to study it at university, and ultimately, using the skills I acquired there in the public policy domain to maybe help answer those two questions I'd ask myself when I was 13, or 14, which is how could this happen? What's going on, and what can be done to make it better? And, of course, public policy is about how to make it better, what might be done to either head off recessions or financial crises and what might be done to cushion their effects. So that's what drew me down the path of economics. That's what drew me down the path of public policy. And indeed, that's what has kept me in public policy over the long period. Since then, for more than 30 years, I've been doing it, most of that time at the Bank of England and, latterly, at the Royal Society of Arts, which is also about social change and public policy.

I know that you spoke a lot about how to increase equality and, specifically, that the Levelling Up the UK agenda is trying to reduce inequality in the UK. Would you say that your experience of the recession has led you to have a greater stress on equality?

Yes, definitely, I think that part of what I think public servants, and indeed economists, should be doing is supporting those most in need of support, opening up opportunities for those that have fewer opportunities, and cushioning the effects of nasty shocks, like recessions, or financial crises, for those least able to bear the consequences. And I think that's one of the key roles we can play is not just smoothing out the bumps for the economy as a whole. But to smooth out the bigger bumps that are felt by those with the fewest resources, fewest opportunities, the lowest income and lowest wealth. So I think it's unavoidably the case that issues of inequality should weigh very heavily in whatever we do. And inequalities exists between individuals, communities, regions, and they exist between nations. And whether it's the ultra micro individual or the macro, nation-state, each and every one of those inequalities really matters and tackling them should absolutely be in our line of sight as a columnist.

I would like to touch on this point of recessions being experienced by the public. In your view, what is more damaging for households, high inflation or high interest rates?

Well, the two tend to go together, of course. So they're both attacks on the balance sheets of households. Whether it's a cost of living or the cost of borrowing, if both are high and rising, that chews up the finances of households and chews up their wages which means they can buy less with their money, with their disposable income. So I think they're both equally bad. Of course, they tend to go together, because when inflation is high as it is right now, with sort of double digits in the UK, central banks often have to raise interest rates to get inflation back under control. And that means that you can go through periods, regrettably, where households face a double whammy, where both the cost of living and the cost of borrowing are rising in a way that squeezes them. And that's very unfortunate. But sometimes shocks come along, rise in the price of energy is topical case in point where you're caught on the horns of a nasty dilemma if you're a central bank. And you're required to impose the squeeze at both ends, hopefully, in a way that still has an eye to supporting the economy. But ultimately, inflation hits hardest the poorest in society. It's a very regressive tax. So getting that under control and keeping that low over the medium term, I think, is really important. And much of my career was spent, first writing about that, and then implementing that in practice.

Every time I talk to people most affected by inflation, the increasing cost of living is always discussed. And I get the sense that wider society feels that the increase in interest rates is sometimes unjustified. Given the high increases in interest rates recently, how do you think this message that ultimately the central bank has to lower inflation could be communicated?

I think ultimately, when you are in those sticky situations, the likes of which we face right now, there isn't any easy solution. And if there were, I'd be the first to adopt it. I'd like nothing better than the interest rates to be low as it was for many decades, up until a couple of years ago. That's not the starting point. And the question is, how can we get the cost of living back to a reasonable rate where people aren't talking about it? You made a really interesting point there about everyone's talking about it. And that is many people's definition of price instability. A situation where people are talking about price rises. Put differently, price stability is a situation when people aren't talking about it. Currently, they are, so we haven't got it. The question is, how do we get it back? And, somewhat higher interest rates are one of the mechanisms through which we do get it back to where there isn't a topic of conversation. That will come regrettably at some squeeze on households and businesses. The path of roads needs to be set in a way that that's squeeze isn't too tight. That's really important.

A few months ago, I attended a talk by your successor, Huw Pill. And the topic of a new report made by the Bank of England, suggesting the pound might actually become a digital currency was brought up. So I would like to hear your views about a digital pound, and how do you think it will affect monetary policy and money transactions?

It's a fascinating topic, not to be confused with cryptocurrencies. There has been lots of cryptocurrencies shooting up over the last few years, and in some cases, shooting back down more recently, which is sort of private sector attempts to create digital monies, Bitcoin being the most obvious case in point. Relatively few of those things are anything you'd call money, actually, they're another financial asset, quite a volatile financial asset. They aren't used as a medium of exchange. They aren't used as a unit of account. And they certainly aren't a very effective store of value, given their volatility. So although they are called cryptocurrency, they're not really money. They are instead some speculative asset, one among a spectrum of speculative assets. And we've seen, as I say, the bubble in them first inflate and laterally, deflate. I say all that because that set us some contrast to what's been discussed, among central banks, which would be something that is money-like. It would serve as a means of transactions, a unit of accounts, and a store of value.

The lion's share of the money issued by central banks already is digital, of course. It's only the often very small slither that is physical cash that's not digital. So the sense this isn't a leap in the dark, isn't something entirely new. Central banks have been issuing digital monies held by other banks for many decades. Now. That's what bank reserves are. And they are the majority of central banks' balance sheets right now. Nonetheless, I think for the public, replacing physical cash in your pocket with digital casts on your smartphone would be a significant thing. To be clear, I don't think anyone's suggesting we scrap physical cash. So for those that want to use it, then keep on using it, but for those that prefer to on their phone, and maybe do prefer to do most things on their phone these days, why not? Provided it is as safe as cash. While it is safe and secure as cash, it has some advantages. It is probably cheaper, certainly, more long-lasting in digital form than in physical form. And also, and that's, in some ways, often presented as the key rational this is just a more efficient, effective and cheaper way of creating and using money for me and you. Of those that don't, they don't have to. But it's also true to say it's been less emphasised so far. And should really be emphasised more that the issuing of digital cash would also give central banks an extra degree of freedom when it comes to monetary policy, namely the ability to levy an interest rate on that digital cash. That's a problem right now because the fact that central banks can't do that places an effective zero lower bound or close to zero lower bound on Central banks capacity to lower interest rates. This is something that up until a few years ago was a very serious constraint. That's why central banks engaged in so much quantitive easing because it was felt that they couldn't really push interest rates, much below zero, As doing so would cause people to flaunt into cash. Because, of course, cash then would pay more than bank accounts, given that you couldn't live in an age of interest rate on that. In principle, a digital pound or digital currency would enable an interest rate to be either paid when it was positive, or levied when it was negative on digital pounds, and therefore would loosen certainly, if not eliminate the zero bound and enable central banks if they ever need to, in the future to set interest rates at a more negative level than they've been able to in the recent past. But also it would mean, and people don't realise this, that in holding a 10-pound note that doesn't pay interest, they are being taxed. Economists, as you know, give that tax a special name. It's called seigniorage, but it's just taxation by the vehicle of money. And paying interest on a digital currency would reduce that taxation. And indeed, it will reduce it most for the poorest because it is the poorer people that tend to use money most who are taxed. So seigniorage is a regressive tax paid most by poorer people. I think those arguments are relevant to monetary policy and are relevant to issues of taxation and inequality, as well as being of relevance to issues of payment sufficiency and cost. The latter of his arguments, I think, haven't been deployed as much as I think I would have done by central banks so far.

Before we will start talking about your work at the Royal Society of Arts, I want to ask you what was it like doing monetary policy during the financial crisis of 2008?

Setting public policy is challenging. There's lots of data to make sense of. Not just hard data, but you're speaking to businesses and speak to people about their experiences. And, of course, it does sometimes involve very hard choices. I mentioned some of those hard choices that central banks are facing right now, where they can't do right for doing wrong really. I mean, they're on the horns of a dilemma. And to some extent that was true back in 2008 and 2009 as well. In that, after the global financial crisis, the pound had fallen sharply. And that was prospectively stoking up inflation pressures, at the same time, as the economy was in recession as a result of the crisis, and that, again, put central banks on the horns of the dilemma. I think, back then central banks did the right thing in loosening monetary policy to support the economy. And that I think, was proven to be the right thing to have done, but nonetheless, it was a tough dilemma. And central banks face some really tough dilemmas now. But you know, I don't complain about that. That's what makes the job worthwhile. That's what makes the job important. That's what makes the job interesting. And I wouldn't have sacrificed any of those things it is your life. I think it's what makes economics important. It's what makes public policy important. You've got to enjoy those moments because that's as good as it gets.

I want to ask you a few questions about your role as the chief executive of the Royal Society of Arts and the Levelling Up the UK agenda. As some of our readers might not know a lot about the Royal Society of Arts, Could you elaborate about its functions?

Yes its functions are also quite vast. The RSA is not quite as old as the Bank of England. The Bank of England was established in 1694. And the RSA is a youngster by comparison because it was created in 1754, still pretty old. And like the bank, the RSA has a social purpose. It's about social change, affecting social change working across sectors, across professions and across disciplines. So although it sounds very different, the underlying mission is still a social mission, it's still a Public Policy mission. Unlike the bank, the issues that the RSA is working on are less about the sort of monetary and financial sides of the economy. They are more about what sometimes is called the real economy. That is to say, issues such as education and learning. What is the education learning system we need for the 21st century? How different is it then to the system we've had for the last 150 years here in the UK? Asking how we regenerate different places across the UK, that's the Levelling Up agenda, if you'd like, which is about how we unlock the potential in places. If the education and learning are about unlocking the potential and people, we should try equally hard to unlock potential, and regenerate places too. Communities that have been left behind, citizens that are struggling, regions that are struggling. So regeneration of people, regeneration of place, and the third is regeneration of planet, doing all of that in a way that averts the climate crisis, meets the needs of the climate emergency and nurtures nature, and its many various forms. So it's about the economy. But the economy as nested in wider society, and wider society as nested in the environment. Thinking about those three years' nested system, the economy, society, and the environment. That's a different frame on economics and the one we often carry around in our heads. I think, it's a very useful elaboration of the models and the frame we carry around as economists. But the economy isn't something distinct and separate. It's embedded in world society and social forces. It shape it every bit as much as economic forces. And equally, the economy and society are themselves nested in nature or the environment. And success for us means not just economic success but social success, and planetary or environmental success as well. That is the different mission that the RSA is pursuing and I think it's very much a 21st century mission.

It was impressive to read about the Levelling agenda and to see how it aims to reduce inequality and create opportunities for everyone across the UK. What do you think could be done to connect the North and the South, apart from the HS2?

I think a whole set of things need to happen to make good on the levelling up agenda. And in the government's white paper that I had a hand in putting together. That's why we defined it in terms of 12 missions that need to be satisfied to be successful in levelling up, and that includes, obviously, the economy, but equally importantly, includes education. Transport, broadband, innovation, people's pride in their places, and it also includes power within place. So on the last of those, I'd say, We will not level up, we will not shrink those divides between North and South, or indeed between cities and towns, unless we give more power to local people to design and deliver local plans, using their local information. I do think that the power, as well as money aspect of this, is really important. What sometimes is called the devolution agenda is really important because, without the sort of coincidence of powers and people and monies existing locally, I think there's no chance that local areas will flourish and thrive.

Our website primarily targets students doing economics-related subjects in UK universities. What would be your advice to students who want to do monetary policy in the future or, generally speaking, join the public sector?

The most important thing to say is I really do hope they want to join the bank or the public sector and have a spell in public service. It's a wonderful way of applying your discipline, of applying your crafts to real world problems. And there are plenty of real world problems out there to get our teeth into. Whether it's the Perma crises or the Polly crises, we were spoilt for choice. There are undamaged of issues to get our teeth into, and you wouldn't want the world to be in that situation, and the world isn't that situation. So use the endowment to make a change to make things better. That's the real power of economics, that's the real power of public service. I couldn't be more encouraging for people to involve themselves in that. It's a wonderful way, wonderful place, both to learn your craft. And to learn your craft by applying your knowledge to real problems. What you'd find overnight is that what had been conceptual or hypothetical in a lecture is now being used in the frontline to set policy, to shape policy, and to shape the outcomes and lives of millions and millions of people. And what can be better than that? And I think anyone going into that can't fail to be challenged by it, to learn from it. But ultimately, to have a deep sense of fulfilment from it. Because, Economics is there not as an abstract discipline but as a practical discipline that can shape millions of people's lives for good or ill, and ideally for good.

I couldn't agree more. Thank you very much for your time. On behalf of the Junior IB, we wish you success in continuing to lead public policy in the UK.

Thank you very much for reaching out to me. It was my pleasure.

Image reference:

Caranti, N. (2013). Andy Haldane at the Festival of Economics in Trento. [online] Wikimedia Commons. Available at: [Accessed 1 May 2023].



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