Central Banks Must Enhance Transparency to Build Trust

IMF Blog, March 23, 2023

Source details

Publication date: March 23, 2023.
Authors: Tobias Adrian, Jihad Alwazir, Ashraf Khan, Dmytro Solohub.
Motivation: Economic and financial turbulence and rising interest rates increase stakeholder scrutiny and calls to limit central bank autonomy; transparency and accountability are essential to maintain public trust, safeguard independence, and enhance policy effectiveness.

“Independence demands transparency.” — Stefan Ingves (quoted from a January interview).
Many laws already include explicit transparency provisions, especially for monetary policy, as evidenced by the IMF’s Central Bank Legislation Database.
In 2020 the IMF Executive Board adopted a new voluntary Central Bank Transparency Code covering mandates, functions, and operations.
The IMF offers voluntary transparency reviews for central banks based on the Transparency Code to assess practices and promote better communication and accountability.

Central banks reviewed to date: Canada, Chile, Morocco, North Macedonia, Seychelles, Uganda, and Uruguay.
Reviews covered: governance, policies, operations, outcomes, and relations with other official stakeholders (such as government and financial regulators).
Reviews aim to:
- Gauge transparency and accountability.
- Facilitate more effective communication and better-informed dialogue with lawmakers, investors, and the public.
- Detail central bank performance and compliance with mandates.
- Help adjust communication tools, channels, and messages to the needs of targeted audiences, reducing uncertainty and contributing to better policy choices.

Bank of Canada: published a detailed summary of its Governing Council deliberations for the first time, joining nearly two dozen other central banks that regularly release detailed information on monetary policy decisions.
Central Bank of Chile: approved a new transparency policy based on the IMF’s review and created a special section on its website to provide additional information on operations.
Central Bank of Seychelles: began publishing a Monetary Policy Report.
National Bank of the Republic of North Macedonia: disclosed audit and risk management details.
Morocco, Seychelles, and Uganda: used review findings to develop institutional communication strategies and strengthen communication units.
IMF post-pilot survey finding (paraphrased from central bank official): reviews help “build more effective and client-driven communication systems” and raise staff awareness about clearer and more understandable communications.

As challenges mount, improving transparency is critical to preserve independence and policy effectiveness.
Future transparency reviews will be available to all IMF members as a voluntary tool to improve transparency and accountability.
The IMF will build a repository of transparency practices, based on information documented during the reviews, to facilitate peer-learning among staff at different central banks.
Expected benefits: reinforce trust in central banks, and strengthen their credibility and effectiveness in an increasingly complex world.

Source: IMF blog post titled "Central Banks Must Enhance Transparency to Build Trust", March 23, 2023.