BANGKOK -- Prominent economists and central bankers from Asia and the U.S. have combined to launch the world's first comprehensive degree course in central banking, in an effort to help the banks keep pace with the rapidly evolving international financial system.
The intensive 12-month master's program was developed by one of the newest international business schools, the Asia School of Business in Kuala Lumpur, and America's MIT Sloan School of Management.
The schools collaborated to launch the ASB in 2016 with backing from Malaysia's central bank, Bank Negara Malaysia, initially for executive MBA courses.
Dr. Zeti Aziz, a former governor of Bank Negara Malaysia, and Nobel Prize-wining economist Robert C. Merton are co-chairs of the new program's advisory board. The residential course, unlike the MBA program, is exclusively aimed at central bankers. It features "immersion" training at central banks around the world and sessions at MIT Sloan in Massachusetts and the ASB, although the main campus will be the ASB's new premises in Kuala Lumpur.
The ASB up to now has primarily offered a 20-month MBA program in conjunction with MIT Sloan that is now in its fourth full year and has graduated 84 students. It plans to launch the central banking course in May with an initial 48 students drawn from central banks around the world.
As well as core aspects of monetary policy and economic management, the curriculum will highlight challenges arising from new technologies and processes, including artificial intelligence, big data, cryptocurrencies and blockchain, and financial disruption.
In a profession generally known for on-the-job training, with no specific degree course, why would central bankers want one now?
"The connectedness and integration of all nations into the global economy and global financial system has increased dramatically, so that local and regional economic problems can readily trigger global crises," Zeti said. "Since the global financial crisis of 2009, central banking practice has far outrun traditional theory, so that many central bankers are forced to make decisions without the benefit of a deep exposure to the latest concepts and thinking."
She also said that central bankers need to stay on top of changes driven by digital technology in banking and financial services.
"Previous training and education for central banks provided the foundations, which is a vital part of the equation," Zeti said. "But in a highly dynamic and rapidly changing environment, demands on central banks are far greater."
Merton, who is distinguished professor of finance at MIT Sloan, spoke of his hopes for the new program. "In the coming five years we are aiming to train 40 to 50 central bankers per year to take up positions of responsibility within their institutions."
If successful, he noted, "we expect the course will grow and other schools will copy our model, multiplying the capacity of the education system to improve the knowledge and capabilities of central bankers around the world."
But creating the program without an operating prototype was a challenge, Merton added.
"We were confident, though, that we could assemble one to do the job. We began by determining what will be the demands on central banks in the future. From there ... we determined a curriculum of courses combining economics and finance theory, empirical work including statistical testing, data collection and analysis and practicum of policy, centered in central banking," he told the Nikkei Asian Review.
Merton's extensive background in finance -- he won the Nobel Prize in economics in 1997 with Myron Scholes for their work on valuing stock options -- has brought extra perspective to the course. "Finance is especially focused on measuring and managing risk and uncertainty," he said.
"Traditional monetary policy is transmitted very differently to multiple channels and largely financially open countries. 'Shadow banking' is only one dimension of the complexity... I therefore believe any training of central bankers for the future must have an extensive and rigorous finance component."
Regarding contrasts between Asian and Western central banks -- and different economic priorities between advanced and developing countries -- Merton said there are differences "across countries and regions" in terms of detailed policy objectives and choices, adding, "but the vast bulk of the underlying knowledge and tools are the same across geopolitical borders."
Further, he noted, "the world, as we all know, especially in finance, has become far more complicated; crises don't stay in one place."
Noted Zeti: "While there is awareness of the issues confronting central banks in the major economies there is less awareness and appreciation of the issues confronting central banks in emerging and developing economies." She explained that the new program will provide an opportunity for exposure to various perspectives and the possible policy options and actions to address them.
The ASB draws faculty from MIT Sloan and other Western as well as Asian institutions. Its 20-month MBA program has quickly gained a reputation for its innovative, "action-learning" method, adapted from MIT Sloan's program.
This features practical training stints at more than 125 partner companies, including multinationals such as Unilever and MasterCard as well as Asian companies such as Daiwa, Petronas and AirAsia.
For sourcing both faculty members and students, who will initially come exclusively from central banks, the course will draw on the networks of its board and educators, including for immersion training in central banks around the world and for guest lectures by active senior central bankers and leading financial experts.
Zeti, who headed Malaysia's central bank for 16 years until 2016, is now chairman of Permodalan Nasional Bhd, Malaysia's state asset manager. The program's director, Eli Remolona, was regional head in Hong Kong of the Bank for International Settlements, and the advisory board features several former central bank governors.
"We will be in a class of our own," Remolona said.