Transparency Makes Central Banks More Effective and Trusted

IMF Blog, July 30, 2020

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Publication: "Transparency Makes Central Banks More Effective and Trusted"
Authors: Tobias Adrian, Ghiath Shabsigh, Ashraf Khan
Date: July 30, 2020
Context: Since the 2008 global financial crisis, central bank roles and mandates have broadened and become more complex; unconventional and large-scale interventions (as seen again during the COVID-19 pandemic) have increased scrutiny and demands for transparency and accountability.

Central banks have expanded responsibilities, including supervision and other financial stability functions.
Transparency is presented as an instrument to facilitate accountability by allowing the public to better understand how central bank actions serve public interest and are consistent with mandates.
The increasing responsibilities and significant expansion of balance sheets drive demand for clearer explanations of what central banks do, how, and why.
"In central bank parlance, transparency and accountability become the collateral guarantee of independence."

Developed by the IMF to help member countries meet demands for greater transparency, increase trust and support, and facilitate more effective communication between central banks and stakeholders.
Nature: voluntary code.
Scope: allows central banks to measure transparency in five key areas or "pillars":
- governance
- policies
- operations
- outcomes
- official relations
Under each pillar, the code provides a list of best practices categorized as "core" to "expanded" to "comprehensive" for key functions such as monetary or macroprudential policy.
The code is designed to accommodate the diversity of the IMF’s 190 members central banks in legal frameworks, governance arrangements, and levels of economic and financial development.
The code is explicitly not a ranking tool and avoids expressing preferences or making recommendations about mandates, institutional setups, or governance procedures.
The code recognizes that transparency is not an absolute goal and includes qualifications for legitimate reasons to delay or withhold publication.

Central banks have legitimate reasons for confidentiality, including:
- market sensitive data
- financial stability considerations
- personal data
Specific areas where confidentiality is particularly relevant:
- foreign exchange interventions
- reserve management
- supervisory decisions on individual institutions
- emergency liquidity assistance
The code outlines the general principle that central banks should develop clear policies explaining and justifying what is kept confidential.

Preparation involved extensive consultations with central banks, monetary unions, international financial institutions, and standard-setting bodies.
Input included contributions from 73 central banks representing diverse regional and economic development backgrounds.
An advisory panel of eminent academics and former governors provided additional perspective and practical experience.
The code was designed to be applicable across countries regardless of income level, exchange rate regime, or geographical location.
Assessments using the code can be performed in full or with a subset of principles and practices applicable to specific circumstances.
IMF staff can assist with evaluations; assessments can be used as diagnostic tools for designing targeted capacity development programs.
Several pilot assessments are planned to help implementation over the coming years.

IMF Executive Board members commended the code’s flexibility and attention to individual circumstances.
On approving the code in mid-July, the Executive Board said in a statement that it is a "timely and useful tool for central banks to guide their transparency practices and strengthen accountability, ensuring more effective policy outcomes and better-informed dialogue with stakeholders."

The IMF transparency code, developed with and for central banks, aims to help central banks maintain and strengthen stakeholder and societal support while performing crucial roles.
As central banks are called to step up actions, building trust and credibility with citizens is highlighted as critical.

Source: IMF blog post "Transparency Makes Central Banks More Effective and Trusted", July 30, 2020.