The expanding role of central banks in a broad array of policy areas has increased the importance of their communication and dialogue with diverse stakeholders. Shabshigh (IMF) started by pointing out that the extension in central bank activities and remit has been going on for some time, but accelerated after the global finance crisis and now the Covid-19 pandemic. Many central banks have greatly increased their balance sheet size through asset purchase programs, and took on new responsibilities in such areas as macroprudential policy. This extension has provoked calls for central banks to be more transparent, without which their cherished autonomy may be put in question.
To help central banks meet these calls, the IMF has recently released the Central Bank Transparency Code, or CBT (https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/07/29/The-Central-Bank-Transparency-Code-49619 ). The code is meant to serve as a wide-ranging guide, with modules for possible policy areas (monetary policy; foreign exchange intervention, financial stability, etc.), which will not all be relevant to any one central bank. Each module includes a definition of a principle and core elements, and an exposition of possible additional features. These modules are then organized in five pillars (governance, policies, operations, outcomes, official relations). The emphasis is on timely and quality public disclosure in a manner suited to different audiences and on the practice of transparency, rather than legal requirements.
Shabsigh stressed that the code is flexible, being suited to countries at all stages of development and with a range of policy regimes, including monetary unions such as the euro area. It is voluntary and without ratings, and designed to facilitate an informed discussion of a central bank’s transparency choices with its stakeholders. Furthermore, the code makes full allowance for the need to maintain confidentiality on ground of market sensitivity, financial stability, or the privacy of personal data.
The code has been well received by central banks. A diverse group, representing a cross-section of Fund membership, are testing it. Once that round of feedback is received, the code may be further refined.
Hardy (St. Antony’s) stressed that transparency is related to policy effectiveness, working through expectations. For example, “forward guidance” is meant to reduce uncertainty about the central bank’s policy intensions and the outlook for the economy, and therefore help steer expectations in a way that makes it easier to hit policy targets. In contrast, ex post transparency is essential for accountability, for example, by revealing the emergency liquidity assistance provided to distressed banks (once it is safe to do so) and any conditions attached to that assistance. However, both ex ante and ex post there can be incentives to be non-transparent, and those incentives may not be fully legitimate. Sometimes the central bank or the government will wish to keep hidden information that would be embarrassing or worse should it leak out. The code allows for “constructive ambiguity,” but the reality is that authorities will always be tempted to mask unpleasant facts. This temptation can be countered by establishing a culture of transparency, which involves not only the central bank but also counterparties such as parliament, the media, and the general public in an informed dialogue. In Europe and especially the euro area, that dialogue extends to European-level institutions such as the European Stability Authorities and the European Parliament.
Lindner (ECB) noted that the CBT can be a useful tool for central banks to guide their transparency practices as they pursue their objectives within an operationally and institutionally more complex environment. The ECB and more broadly the Eurosystem have constructively engaged, providing early suggestions and feedback on the CBT. The ECB sees transparency and accountability as essential for independence and effectiveness, and as mutually reinforcing. Lindner explained that achieving transparency and accountability in the Eurosystem is complicated by its idiosyncratic, semi-centralized structure, where the national central banks (and other financial authorities) retain certain competencies. Furthermore, besides the evolution of the policy landscape, the Eurosystem has itself evolved rapidly, notably with the establishment of the Single Supervisory Mechanism.
The ECB’s communication channels and practices have evolved to keep up. The ECB is primarily accountable to the European Parliament, and the intensity and quality of communication with the Parliament has increased over the years. For example, the ECB President replies to an increasing number of questions from parliamentarians, and follow-up to suggestions contained in parliamentary resolutions is documented in the ECB annual report. The dialogue with the Parliament has been stepped up even further during the Covid-19 crisis. Nonetheless, and as recognized in the code, some discretion is warranted. For example, accounts of the discussions on monetary policy by the Governing Council are published on an anonymous basis, so that Council members can speak more freely.
Some participants in the general discussion that followed pointed out that central banks tend to view transparency more favorably than do ministries of finance, and ministries in some countries can set the transparency rules. Transparency may be especially problematic where a central bank engages in quasi-fiscal activities (e.g., favoring finance of a particular sector) and in the definition of central bank profits, which are then paid out as dividends to government. Nonetheless the code was seen as a valuable tool in the evolving political economy context in which central banks operate.
Daniel C. Hardy (Visiting Academic, St Antony's College, Oxford)
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