“One Bank to Rule them All: The Discreet Power of the Bank for International Settlement”
When talking about the organizations of the international financial system, we often refer to the Bretton Woods institutions created in 1944, namely, the World Bank and the International Monetary Fund. However, the world’s oldest and most opaque international financial organization was founded long before that, in 1930. Despite being relatively unknown, the Bank for International Settlement (BIS) is still one of the most influential global financial institutions today.
Based in Basel, Switzerland, the BIS was established as a way to ease the process for Germany to make their reparations payments to the Allies after the first World War. Shortly after its establishment, the Great Depression and accusations that the BIS had laundered money stolen by the Nazis led to demands to close the Bank. Yet, as no concrete date was set for its dismantlement, the bank survived and shifted its focus to a more general technical cooperation amongst banks. From managing the reparation payments, to paving the way for the introduction of the Euro, the current role of the Bank is now to act as a forum for central bankers to meet and to serve central banks for global financial stability. In other words, the BIS acts as a bank for central banks.
The BIS has only 140 customers, consisting mainly of financial institutions and private entities, and the 60 central banks it serves account for 95% of the of the world’s GDP. These shareholders include the Federal Reserve, Sveriges Riksbank, the Bank of Japan, the Bank of England and many other giants of the global economy
The Bank’s headquarters on the top floor of the Tower of Basel offers a stunning panorama over Switzerland, France and Germany. There, central bankers spend lavish dinners discussing politics, finance and economy in a place filled with luxury. The institution benefits from privileges such as tax exemption, luxury accommodations, extensive legal immunity, and astronomical salaries for its members’ highest profiles. Every two months, the Global Economy Meeting, the Economic Consultative Committee (ECC) and the All Governors’ Meeting gather at the Bank with the members divided according to the committee(s) they belong to. Yet, except from the All Governor’s Meeting, not all central bankers are allowed to attend the meetings. The ECC is known to be the most exclusive of the committees, with only 18 members.
Aside from its elite exclusivity, what makes the BIS particular is its hybrid nature, with the status of an International Organization and the make-up of a commercial bank. The Bank is allowed to grant short-term credit to central banks, as well as to buy, sell and maintain gold on its own account. Its dual status benefits its operations and yields. The BIS was created based on an International Treaty and Swiss company law; the latter ensuring its inviolability. Even the Swiss authorities are not allowed to enter the Bank without permission from the BIS management, guaranteeing the Bank and its members complete autonomy.
Although the BIS states that transparency is one of its main assets, little is publicly known about its actions. Since its inception, the Bank has been highly secretive and remains so today, despite its maintenance of a Twitter, a YouTube channel, a LinkedIn page and an official website where some information is communicated and some reports shared. Questions remain as to who exactly attends the meetings? Which topics are they discussing and who will it impact? This information is not available to the public as the meetings are not recorded and very few press conferences are held. The Bank is authorized to communicate through writing codes as well as correspondence with bags containing the same seals as embassies, so their contents cannot be opened or verified, remaining strictly confidential. In an attempt to address the mounting criticism the BIS has received for its lack of transparency, the General Manager stated last June that the Bank would strive to become “more approachable”.
But why is transparency important for an institution as influential as the BIS? While decisions, recommendations and guidelines of the Bank are qualified as “soft-power” the consequences impact many aspects of daily life. Central banks are responsible for providing funds to their countries’ economies when commercial banks cannot cover a shortage of supply, but mainly they provide price stability to their countries’ currencies by controlling inflation. The creation of money indeed has impacts on a society in terms of employment, purchasing power, investment, economic growth and income inequality. As the bank of the central banks, the covert power of the BIS is hugely significant.
From its conception in 1930 to its current activities, the BIS has remained silent in many aspects while becoming a central pillar of the global financial system. Not only is the BIS a forum for central bankers, it is also a hub for elites to discuss finance privately, a bank, a regime-maker, a research institute, a commercial bank, a think tank and a highly influential International Organization. The BIS, which has hosted numerous committees crucial to the world economic order, has succeeded in asserting itself as a global actor in the most discreet way.