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The Bank of Canada
published a detailed summary of its Governing Council deliberations for the first
time last month, joining nearly two dozen other central banks in regularly
releasing detailed information on monetary policy decisions.
Economic and financial turbulence calls for greater transparency from policymakers. As central banks raise interest rates to curb inflation,
stakeholders increase their scrutiny. In some countries policymakers face
growing calls to reign in their autonomy. To maintain public trust,
safeguard independence, and enhance policy effectiveness in the face of
such challenges, monetary authorities must focus on transparency and
accountability.
Stefan Ingves, who stepped down in December after 17 years as
governor of Sweden’s Riksbank, said it best:
“Independence demands transparency,” he said in a January
interview with Central Banking. “If you’re independent, it’s vital that people can
understand what you are doing. If you are independent and you tell the
general public ‘It’s none of your business,’ independence will be taken
away from you, sooner or later.”
Many laws already include explicit transparency provisions, especially for
monetary policy, as the IMF’s Central Bank Legislation Database shows.
The IMF has recognized the importance of transparency and actively promoted
it. The Executive Board in 2020
adopted a new voluntary Central Bank Transparency Code, a comprehensive set of
principles covering mandates, functions, and operations. Based on the code,
the Fund offers central banks the opportunity to participate in a review of
their transparency practices.
The reviews help central banks gauge their transparency and accountability,
facilitating more effective communication and better-informed dialogue with
lawmakers, investors, and individuals.
To date, the IMF reviewed the central banks of
Canada,
Chile,
Morocco,
North Macedonia,
Seychelles,
Uganda, and
Uruguay, covering governance, policies, operations, outcomes, and relations with
other official stakeholders, such as government and financial regulators.
We summarize experience of pilot reviews in a new
policy paper.
The reviews spotlight the importance of transparency in facilitating
accountability, as well as detailing central bank performance and
compliance with mandates. They also help facilitate more effective
communication between central banks and their various stakeholders,
including lawmakers, news media, academics, and the public. This helps them
to adjust their communication tools, channels, and messages to the needs of
the targeted audiences, reducing uncertainty and contributing to better
policy choices.
How did central banks react to the recommendations? Beyond the Bank of
Canada’s decision to release summaries of policy deliberations, the Central
Bank of Chile approved a new transparency
policy based on the IMF’s transparency review and created a special
section on its website to provide the additional information on the way it
operates.
The Central Bank of Seychelles began publishing a
Monetary Policy Report, while the National Bank of the Republic of North Macedonia
disclosed audit and risk management details. The central banks of Morocco,
Seychelles, and Uganda used review findings to boost the effectiveness of
their communications by developing institutional strategies and
strengthening communication units.
Behind every central bank are dedicated professionals. And the reviews
helped raise their awareness about the need for clearer and more
understandable communications. Consequently, as one central bank official
noted in response to the survey conducted by the IMF after the pilot phase,
it helps “build more effective and client-driven communication systems.”
What’s next?
As central banks face mounting challenges, it is critical that they improve
transparency because, ultimately, their independence and policy
effectiveness will be at stake.
Future transparency reviews will be available to all IMF members as a
voluntary tool to improve transparency and accountability. The Fund will
also build a repository of transparency practices, based on information
documented during the reviews, to facilitate peer-learning among staff at
different central banks. The new tool will help reinforce trust in central
banks, as well as their credibility and effectiveness in an increasingly
complex world.
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