"Central Bank Godfather," former Federal Reserve Vice Chairman Stanley Fischer has passed away at the age of 81

According to a statement from the Bank of Israel, legendary macroeconomist and former Federal Reserve Vice Chairman Stanley Fischer passed away on Saturday at the age of 81.

Stanley Fischer served as the Governor of the Bank of Israel for eight years and was Vice Chairman of the Federal Reserve from 2014 to 2017. His resume also includes positions at the Massachusetts Institute of Technology, the International Monetary Fund, the World Bank, and as Vice Chairman of Citigroup in New York.

This "godfather of central banking" not only shaped the framework of modern monetary policy but also nurtured a generation of decision-making elites from the Federal Reserve to the European Central Bank, from the Bank of Japan to the International Monetary Fund. His passing marks the end of a golden era of monetary policy.

Students Spread Across Global Central Banks

Fischer was born on October 15, 1943, in the small town of Mazabuka in Zambia (then known as Northern Rhodesia) to Lithuanian immigrant parents. At the age of 13, his family moved to Zimbabwe (then known as Southern Rhodesia).

He was introduced to economics in his senior year of high school through a course and then went to the London School of Economics in the UK, where he earned his bachelor's degree in 1965 and his master's degree in 1966. He chose to pursue a PhD at the Massachusetts Institute of Technology to study under future Nobel laureates Paul Samuelson and Robert Solow.

He received his PhD in economics in 1969 and served as an assistant professor at the University of Chicago before returning to MIT as an associate professor in 1973. His first course taught was monetary economics, co-taught with Samuelson. In 1977, he became a full professor.

Fischer's influence is not solely based on his personal achievements but on the network of students he cultivated, which nearly controls the decision-making power of major central banks worldwide.

According to Bernanke, his own interest in monetary policy can be traced back to a conversation with Fischer in the late 1970s when Fischer handed him a copy of Friedman and Schwartz's A Monetary History of the United States, 1867-1960 (1963) and encouraged him:

Read this book. It might bore you to death. But if it excites you, you might consider monetary economics.

During his time at MIT, Fischer's students included former Federal Reserve Chairman Bernanke, former European Central Bank President Draghi, current Bank of Japan Governor Ueda Kazuhiro, former U.S. Treasury Secretary Summers, Bush's economic advisor Mankiw (author of Principles of Economics), and two former IMF chief economists Blanchard and Obstfeld.

This list reads like a "power list" of global monetary policy. As former IMF chief economist Olivier Blanchard stated in 2023:

It is hard to imagine any living macroeconomist who has had such a direct and indirect impact on global macroeconomic policy through their research, students, and policy decisions.

Fischer's co-authored "Lectures on Macroeconomics" with Blanchard, as well as the macroeconomics textbook he co-authored with his MIT colleague Rudi Dornbusch, have further spread his theoretical influence to countless economics practitioners. The latter has been published up to the 13th edition and has become a cornerstone of global economics education.

Crisis Firefighter

Another dimension of Fischer's career is as a "firefighter" during global economic crises.

In 1983, then U.S. Secretary of State George Shultz invited Fischer to participate in a U.S.-Israel expert group to help Israel address its crisis of triple-digit inflation and depleting foreign reserves. The economic stabilization plan developed by this group in 1985 combined significant cuts to government subsidies, a fixed exchange rate, tight monetary policy, and wage-price controls, ultimately receiving support from a $1.5 billion two-year aid program from the U.S.

This success earned Fischer the position of First Deputy Managing Director of the IMF. From 1994 onwards, Fischer moved between various financial crisis sites around the world—Mexico, Russia, Brazil, Thailand, Indonesia, and South Korea. During his seven-year tenure, the IMF provided approximately $250 billion in emergency loans.

Fischer later recalled his mindset during the 1994 collapse of the Mexican peso:

I thought the Western civilization as we know it was about to end.

But the calmness of IMF President Michel Camdessus made me realize that he had seen this play before.

The Legend of the Bank of Israel

In 2005, Fischer became an Israeli citizen to accept the position of Governor of the Bank of Israel (he had been a U.S. citizen since 1976).

During the global financial crisis, he demonstrated extraordinary policy foresight: the Bank of Israel became the first central bank in the world to cut interest rates in 2008 and also the first to raise rates in 2009 in response to signs of recovery.

Former Bank of England Governor Mervyn King commented in 2013:

Fischer's adept handling of the Israeli economy proved this point—Israel was one of the few developed economies that achieved output growth every year throughout the crisis.

Fischer's significant reforms at the Bank of Israel included transferring the authority to decide monthly interest rates from the governor alone to a six-member monetary committee that included three external scholars, a system innovation that was later emulated by many central banks.

Dual Identity on Wall Street and Academia

After leaving the IMF, Fischer joined Citigroup in 2001 as Vice Chairman, leading the bank's Country Risk Committee. In 2011, he applied for the position of IMF Managing Director but was unable to fulfill his wish due to the age limit of over 65, with the position ultimately going to Christine Lagarde In 2014, President Obama appointed Fischer as Vice Chairman of the Federal Reserve, partnering with Yellen. He retired a year early in 2017 and joined BlackRock as an advisor in 2019.

As former U.S. Treasury Secretary Summers wrote in 2017:

In a just world, Fischer would have served at some point as Chairman of the Federal Reserve or President of the IMF.

Fate is capricious, and that did not happen. But Fischer's influence on global monetary policy through his teaching, writing, advice, and leadership is comparable to that of anyone from the previous generation. Hundreds of millions of people live better because of his efforts.

Fischer's passing not only signifies the loss of a master in the field of monetary policy but also marks the end of an era where personal influence and academic authority could shape the global financial order. In today's increasingly politicized environment of monetary policy, it is difficult to find an authoritative figure like Fischer who spans academia, politics, and finance