Transparency in Monetary and Financial
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A. Background and Development of the Supporting Document
Development of the Code of Good Practices on Transparency in Monetary and Financial Policies
1. The Code of Good Practices on Transparency on Monetary and Financial Policies: Declaration of Principles1 was developed in the context of the development of standards and codes for public disclosure and transparency practices designed to strengthen the international monetary and financial system.2 Calls for greater transparency extend across a wide spectrum—to commercial banks, securities and insurance firms, and other institutions and participants in financial markets, to governments and their policies, and to multinational institutions, including the International Monetary Fund. The adoption of the MFP Transparency Code, therefore, is part of a larger focus on transparency.
2. The objective of the MFP Transparency Code is to improve transparency of the objectives and operational processes governing monetary and financial policies. The underlying rationale and main elements of the MFP Transparency Code, including the benefits and limitations of transparency for monetary and financial policies, are discussed in more detail in the Introduction to the MFP Transparency Code.3
3. For purposes of the MFP Transparency Code, transparency for central banks and financial agencies refers to an environment in which the objectives of monetary and financial policies, their legal, institutional, and policy framework, monetary and financial policy decisions and their rationale, data and information related to these policies, and the terms of central bank and financial agencies accountability are provided to the public in a comprehensible, accessible, and timely manner. The transparency practices listed in the MFP Transparency Code focus on: (1) clarity of roles, responsibilities and objectives of central banks and financial agencies; (2) the process of formulating and reporting of monetary policy decisions by the central bank and of financial policies by financial agencies; (3) public availability of information on monetary and financial policies; and (4) accountability and assurances of integrity by the central bank and financial agencies. The public refers to those entities with an interest in the design and implementation of monetary and financial policies.
Implementation of the MFP Transparency Code
4. The various internationally developed codes and standards of good practices in the economic and financial spheres, including the MFP Transparency Code, are voluntary. These codes and standards are consensus documents directed at countries and institutions with significant diversity in institutional arrangements, market structures, and legal frameworks. Adoption of these codes, therefore, requires adaptation to individual country circumstances, taking into account the benefits and limitations of transparency that could be affected by specific policy and institutional circumstances.
5. On September 26, 1999, the Interim Committee of the Board of Governors of the International Monetary Fund4 adopted the MFP Transparency Code. In the Communiqué, the Committee “urges all [Fund] members to implement the Code” To make the MFP Transparency Code operational, the Interim Committee in its Communiqué of April 27, 1999 charged the Fund “to proceed promptly in preparing, in cooperation with appropriate institutions, a supporting document to the Code.” Since mid-1999, Fund staff, in cooperation with international organizations and others, has been engaged in an intensive effort to develop such a document—the Supporting Document to the Code of Good Transparency Practices on Monetary and Financial Policies.5 The MFP Transparency Code contains a listing of broad principles related to transparency for monetary and financial policies that central banks and financial agencies should seek to achieve. The Supporting Document sets out in detail these practices and offers examples of how the practices of the MFP Transparency Code are applied by these institutions. By elaborating and illustrating the practices listed in the MFP Transparency Code, the Supporting Document serves as a guide to implement the MFP Transparency Code.
Process of developing the Supporting Document
6. The practices in the MFP Transparency Code were drawn from a review of good transparency practices used by a number of central banks and financial agencies. The MFP Transparency Code thus represents a distillation of concepts and practices that are already in use and for which there is a record of experience. In preparing the Supporting Document, it was felt desirable to include a broad range of experiences of transparency practices of central banks and financial agencies. As a way to elicit more information related to transparency practices by these institutions, the staff mailed a comprehensive questionnaire to the IMF’s membership (as well as to such multinational central bank arrangements as the European Central Bank, the East Caribbean Central Bank, and the Central Bank of West African States). The questionnaire was keyed to each of the transparency practices of the MFP Transparency Code, seeking information about whether and how individual central banks and financial agencies observe the practices of the MFP Transparency Code.
7. By end-July 2000, 265 institutions, representing 135 countries, submitted responses to the questionnaire to the IMF. There were 120 responses from central banks (with many covering monetary policy, banking supervision and payment system oversight) and 145 responses from a variety of financial agencies responsible for the regulation or oversight of banking, insurance, securities and deposit insurance, including 20 responses from composite financial supervisory agencies. The responses represent the full range of the IMF’s membership and of agencies from the principal financial sectors. Table 1 shows the composition of responses by policy function of the respondents.6
8. The deliberations in the development of the MFP Transparency Code demonstrated that there are considerable differences regarding the desired degree of transparency in monetary and financial policies. The information in the responses to the questionnaire and in the assessments of the MFP Transparency Code confirm the diversity of central bank and financial agency experience on transparency, with some of these entities more active in promoting transparency than others. The extent of transparency also varies among central banks and financial agencies, with some promoting transparency on the full range of practices and with others being more selective, and advancing some practices and not others.
9. The development of the Supporting Document also benefited from direct feedback and input by national authorities. The staff drew on the various assessments of the observance of standards and codes that the Fund staff has undertaken over the past year as part of the IMF-World Bank Financial Sector Assessment Program7 and Reports on Observance of Standards and Codes (formerly Transparency Reports) activities.8 In addition, the Fund organized seven regional consultative meetings on the Supporting Document.9 These regional meetings provided an opportunity to broaden the awareness of the MFP Transparency Code and to obtain useful feedback and input on an early draft of the Supporting Document from national authorities.
10. A Consultative Group on the Supporting Document to the Code of
Good Practices on Transparency in Monetary and Financial Policies
was also constituted. This Group consists of representatives from five
international/regional organizations 10 and four international financial sector groupings.11 In preparing the
Supporting Document, the
IMF staff drew on the expertise of the members of this Group.
B. Objective and Structure of the Supporting Document
Objective of the Supporting Document
11. The transparency practices in the MFP Transparency Code are expressed in general terms. Phrases such as “should publicly disclose” or “should be publicly disclosed and explained” or “should be specified in legislation” or “should present to the public a report” or “should disclose. on a preannounced schedule” or “publicly announced and explained in a timely manner,” in which many of the practices in the MFP Transparency Code are couched, leave considerable scope for their interpretation in practice. These wordings leave open the manner of disclosure, the content of the explanations and reports, and the precise time dimensions of disclosure. They necessarily will have to vary from practice to practice and will need to take into account the different institutional arrangements with respect to the conduct of monetary and financial policies, the legal frameworks underlying these policies, and particular circumstances of the countries involved. It would be futile and inappropriate to prescribe precise content to these general terms.
12. As a way to give operational meaning to the practices of the MFP Transparency Code that are expressed in such general terms, the Fund staff has surveyed the range of ways and mechanisms that central banks and financial agencies around the globe are using to practice transparency. The principal objective of the Supporting Document, therefore, is to present in a systematic way information on the various transparency practices of the MFP Transparency Code, including alternative ways to achieve the objective of transparency. In this way, the Supporting Document can serve as a useful reference source for central banks and financial agencies seeking to implement the MFP Transparency Code.
13. For some areas covered by the MFP Transparency Code there are other international standards that have been developed, or that are in the process of being developed by the IMF and other organizations that deal with the conduct of monetary and financial policies and financial sector-related areas (such as accounting, auditing, banking regulation and supervision, bankruptcy, corporate governance, data dissemination, insurance regulation, payment system oversight, and securities market regulation).12 The focus of these standards is broader than transparency and relate to the underlying content and quality of the policies, as well as to requirements directed to the institutions and firms under the jurisdiction of these standard-setting organizations. However, transparency and disclosure practices are also covered in these standards, and thus have direct relevance to the MFP Transparency Code and the Supporting Document, which are intended to be supportive and consistent with these other initiatives.
Structure and content of the Supporting Document
For each transparency practice of the MFP Transparency Code, the Supporting Document contains a two- or three-part entry.
15. The specific central bank and financial agency examples in the “Application” sections of the Supporting Document provide additional clarification of the ways in which transparency can be achieved. These examples should prove helpful to institutions seeking to adopt changes in their transparency practices. The examples cited should be viewed as illustrative of a sample of possible examples currently in use, and are not to be regarded as exhaustive, exclusive, or definitive. The examples cited do not imply approval or endorsement; nor should the examples cited be regarded as norms, benchmarks, or “best” practices. The fact that a particular central bank or financial agency is not cited as an example does not mean that it does not follow a particular transparency practice.
16. The principal criteria for citing individual central banks or financial agencies as examples are that they (a) illustrate distinctive and instructive transparency/disclosure features of a practice (distinctive and instructive by the clarity of focus on transparency or special disclosure features); and/or (b) illustrate alternative means of meeting the transparency objective of the practice. In addition, an attempt has been made to select examples from different types of economies and from different regions to give the document a representative global coverage.
17. Some central banks and financial agencies have opted in recent years to become more transparent, and have adjusted their transparency practices accordingly. Similarly, some countries have a tradition and culture for more openness than others do. The frequency that particular countries/institutions are cited in the “Application” sections reflect to a large extent these developments and conditions.
18. The MFP Transparency Code’s transparency practices in Sections V-VIII of the MFP Transparency Code for financial agencies (Part 3 of this document) focus principally on those elements that are applicable to all types of financial agencies. However, not all transparency practices are equally relevant to all financial agencies, and the transparency objectives for different financial sectors vary. For some (e.g., securities regulatory agencies), the emphasis is on market efficiency considerations, for others (e.g., banking supervisory and payment system oversight agencies) the focus is on market and systemic stability, while for others (e.g., insurance regulatory and deposit insurance agencies) the principal consideration is client-asset protection. Moreover, some financial supervisory agencies are composite and responsible for more than one financial sector; some are independent agencies, while others are part of a larger government unit. To reflect some of these differences, where appropriate, the “Explanation and rationale” and “Application” entries for the practices in Section V-VIII of the MFP Transparency Code distinguish among financial agencies.
19. The transparency practices listed in the MFP Transparency Code and elaborated upon in the Supporting Document, where applicable and adjusted as necessary, also apply to financial-sector type policies not specifically covered in the MFP Transparency Code and the Supporting Document. Thus, the Supporting Document is relevant for the conduct of those specialized agencies or bureaus of ministries assigned to manage the public debt, international reserves, foreign exchange controls, debt restructuring, or pension funds.
20. Appended to this introduction are four appendices: the text of the MFP
Transparency Code, references to professional literature and official
documents that deal with transparency of monetary and financial policies, a
glossary of key terms used in the Supporting Document, and a listing of
website addresses of composite financial supervisory agencies. These additional items increase
the reference value of the
C. Transparency, Disclosure, and the Supporting Document
Alternative means of disclosure
21. To make transparency effective entails effort by national or, where applicable, multinational authorities to build public understanding of the objectives of policy, the nature of the responsibilities of these authorities, and the policy process. Promoting public understanding of these matters involves authorities being active in developing and conveying information, using the various means available to these institutions to disclose information, and tailoring the message according to the needs of particular audiences.
22. There are a variety of means and methods of communicating with the public on the role, policies, decisions, performance, and operations of the central bank or financial agency. For many of the transparency practices in Sections I and V of the MFP Transparency Code, a fundamental form of disclosure is having those aspects related to the roles, responsibilities and objectives of central banks and financial agencies specified in legislation or regulation, which by their nature are public documents. A publicly available monetary or financial regulation, guideline, or ruling is another way of communicating with the public. For practices related to overlapping responsibilities and relationships between or among different institutions (e.g., central bank and finance ministry or different financial agencies), including consultation arrangements, a publicly released memorandum of understanding is an effective disclosure method. Less formal and more flexible forms of disclosure include written reports to the legislature and/or the public on aspects of policies and functions, press releases, appearances by officials before public audiences or the legislature, official publications (a quarterly or monthly review or bulletin), and the annual report. Finally, dramatic advances in communication technology, and in particular the potential of websites, have opened effective means for institutions to communicate with a wider public about central bank and financial agency policies and operations.
23. In many instances, use of more than one of these forms of disclosure may be necessary if a central bank or financial agency seeks to achieve effective transparency. Depending on the extent that a central bank or financial agency desires to broaden the public understanding of aspects of its institutional mandate, for example, the legislation or regulation could be supplemented and detailed by a publicly released and readily available mission statement, and/or recurring discussion and explanation in the institution’s publications, public statements and public appearances, and/or posting on the central bank’s or financial agency’s website. Similarly, for other practices of the MFP Transparency Code, central banks and financial agencies can practice transparency by utilizing more than one form of disclosure.
24. In a number of countries, some transparency requirements are imposed on a government-wide basis. These requirements form that part of legislation or regulation that apply to all units of government and to all or identified public servants.14 These laws and regulations are part of the public record. Central banks and financial agencies are typically subject to these government-wide provisions. Thus, for some of the transparency practices in the MFP Transparency Code, (e.g., 2.5 and 6.4, 3.4 and 7.5, 4.4 and 8.4, and 4.4.1 and 8.4.1), practices that deal with the above-mentioned issues, in countries where government-wide transparency practices are in effect, central banks and financial agencies follow the same practices as other units of government. In some cases, central banks and financial agencies reconfirm or supplement the government-wide transparency practices in their publicly available bylaws or similar document.
25. Some of the alternative means of disclosure have limitations. Disclosure through legislation or regulation has the potential drawback that legislative or regulatory language often is technical or complex. Moreover, texts of laws and regulations are not always readily accessible. However, the development of websites makes it possible to post the text of relevant laws and regulations, thereby allowing institutions to make these available to a wide audience. Memoranda of understanding often are treated as (sensitive) internal documents, and thus may not be released to the public. The annual report, due to its publication a number of months after a calendar or fiscal year, serves better as a document of record than as a timely source of information to the public of ongoing developments and policies. Disclosure through other publications (bulletin and even press releases) and developing and maintaining an effective website involve outlays that some central banks or financial agencies are not able to afford.
Quality of transparency
26. Related to the form of transparency is the quality of information that is disclosed. It is the content, clarity and accessibility of the information and data that are being disclosed that transforms “disclosure” into “transparency.” Creating effective transparency requires more than just making information available about policy objectives, responsibilities, policy decisions, and performance results. In the area of data disclosure, which is an important aspect of the MFP Transparency Code’s practices, the guidelines and procedures of the IMF’s data dissemination standards and other standards developed by different international organizations and associations aim at presenting readily accessible data in an orderly and timely basis, with an emphasis on reliability. Regarding the release of various statements and reports called for in the MFP Transparency Code, however, there are no equivalent guidelines.15 In order to achieve the objective of the transparency practices of the MFP Transparency Code, these statements and reports need to contain meaningful and relevant information and need to be released on a timely basis.
27. The content of disclosure is critical for the efficient functioning of markets, which will only increase in importance with the evolving changes in international trading and financing arrangements and sophistication of markets. Failure to present public statements and reports on monetary and financial policy issues with appropriate content could undermine the credibility of central banks and financial agencies and thus become counterproductive. The focus of transparency practices should be on the materiality and relevance of the information that is being provided to the public. The objective of transparency would not be met by releasing reports that offer contradictory assessments, by issuing multiple regulations (particularly if earlier-issued and dated regulations are not revoked and withdrawn), or if regulations are written in highly technical or arcane language. Similarly, not applying transparency practices consistently (e.g., reversals of previously applied transparency practices when developments are unfavorable), would go against the spirit and intent of transparency and could weaken credibility.
28. For monetary policy transparency, the scope for being transparent and the content of transparency is conditioned by the nature of the monetary policy regime. Countries that pursue an inflation target, for example, are disposed to be transparent and rely on frequent public statements and reports that offer detailed information and discussion on their target and performance as a means of establishing credibility. Countries with fixed exchange rates, on the other hand, may at times be inclined to limit certain disclosure practices. For example, extensive disclosure requirements about exchange market operations might disrupt markets. Similarly, moral hazard, market discipline, or financial market stability considerations often may influence the content and timing of the disclosure of some corrective actions or emergency lending decisions. In the same vein, in order to safeguard the confidentiality and privacy of information on individual firms, financial authorities may feel constrained from making public their supervisory deliberations or enforcement actions related to individual financial institutions, markets, and individuals. The case for limiting transparency in selected areas at particular times for the above-type circumstances, however, is more credible in the context of an otherwise transparent environment.
Changing environment and transparency
29. The attitude with respect to transparency by central banks and financial agencies is evolving, reflecting changes in the international environment. There are several developments that are providing impetus for central banks and financial agencies to practice greater transparency in the conduct of their affairs. First, the notion of transparency has gained greater public attention, thus eliciting an increasing number of calls on central banks and financial agencies by legislatures, the media, markets, and the public at large to become more open about their policies and activities. Second, policymakers have recognized that globalization in general, and international integration of financial markets and products in particular, require a greater degree of transparency of monetary and financial policies and of regulatory regimes and processes as a means of containing market volatility. Third, the adoption of the General Agreement on Trade and Services is placing greater attention on the conduct of financial services. Fourth, an increasing number of central banks have adopted forms of inflation targeting as their ultimate policy objective. Public disclosure of how they are meeting these targets has become a critical element to establish credibility, shape expectations, and, thereby, strengthen the effectiveness of monetary policy. Finally, revolutionary advances in communication technology, and increasing public access to means of electronic communication such as websites, have greatly reduced the difficulties, costs, and time delays of disseminating information to the public. An increasing number of central banks and financial agencies are availing themselves of these easier and efficient means of communicating with the public about their policies and activities. As a result of these changes in the international environment, a number of central banks and financial agencies have become more transparent in their disclosure practices. The Supporting Document recognizes and takes into account this change in attitude to transparency.
30. At the same time, in recent years a number of significant changes in the policy and regulatory structure have occurred. The creation of a multinational central bank arrangement in Europe and the formation of composite financial regulatory agencies in a number of countries16 has required these entities to focus on the role and form of transparency in the conduct of their affairs. The transparency practices that they have adopted, therefore, are relatively recent, experimental, and not yet fully tested.
Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles
1. In the context of strengthening the architecture of the international monetary and financial system, the Interim Committee in its April and October 1998 Communiqués called on the Fund to develop a code of transparency practices for monetary and financial policies, in cooperation with appropriate institutions. The Fund, working together with the Bank for International Settlements, and in consultation with a representative group of central banks, financial agencies, other relevant international and regional organizations,1and selected academic experts, has developed a Code of Good Practices on Transparency in Monetary and Financial Policies. The Code parallels the Code of Good Practices in Fiscal Transparency developed by the Fund and endorsed by the Interim Committee in April 1998.
2. The Code of Good Practices on Transparency in Monetary and Financial Policies identifies desirable transparency practices for central banks in their conduct of monetary policy and for central banks and other financial agencies in their conduct of financial policies. The definitions of “central bank,” “financial agencies,” “financial policies,” and “government” as used in this Code are given in the attached Annex.
3. For purposes of the Code, transparency refers to an environment in which the objectives of policy, its legal, institutional, and economic framework, policy decisions and their rationale, data and information related to monetary and financial policies, and the terms of agencies= accountability, are provided to the public on an understandable, accessible and timely basis. Thus, the transparency practices listed in the Code focus on: (1) clarity of roles, responsibilities and objectives of central banks and financial agencies; (2) the processes for formulating and reporting of monetary policy decisions by the central bank and of financial policies by financial agencies; (3) public availability of information on monetary and financial policies; and (4) accountability and assurances of integrity by the central bank and financial agencies.
4. The case for transparency of monetary and financial policies is based on two main premises. First, the effectiveness of monetary and financial policies can be strengthened if the goals and instruments of policy are known to the public and if the authorities can make a credible commitment to meeting them. In making available more information about monetary and financial policies, good transparency practices promote the potential efficiency of markets. Second, good governance calls for central banks and financial agencies to be accountable; particularly where the monetary and financial authorities are granted a high degree of autonomy. In cases when conflicts might arise between or within government units (e.g., if the central bank or a financial agency acts as both owner and financial supervisor of a financial institution or if the responsibilities for monetary and foreign exchange policy are shared), transparency in the mandate and clear rules and procedures in the operations of the agencies can help in their resolution, strengthen governance, and facilitate policy consistency.
5. In making the objectives of monetary policy public, the central bank enhances the publics understanding of what it is seeking to achieve, and provides a context for articulating its own policy choices, thereby contributing to the effectiveness of monetary policy. Further, by providing the private sector with a clear description of the considerations guiding monetary policy decisions, transparency about the policy process makes the monetary policy transmission mechanism generally more effective, in part by ensuring that market expectations can be formed more efficiently. By providing the public with adequate information about its activities, the central bank can establish a mechanism for strengthening its credibility by matching its actions to its public statements.
6. Transparency by financial agencies, particularly in clarifying their objectives, should also contribute to policy effectiveness by enabling financial market participants to assess better the context of financial policies, thereby reducing uncertainty in the decision making of market participants. Moreover, by enabling market participants and the general public to understand and evaluate financial policies, transparency is likely to be conducive to good policy making. This can help to promote financial as well as systemic stability. Transparent descriptions of the policy formulation process provide the public with an understanding of the rules of the game. The release of adequate information to the public on the activities of financial agencies provides an additional mechanism for enhancing the credibility of their actions. There may also be circumstances when public accountability of decisions by financial agencies can reduce the potential for moral hazard.
7. The benefits for countries adopting good transparency practices in monetary and financial policies have to be weighed against the potential costs. In situations where increased transparency in monetary and financial policies could endanger the effectiveness of policies, or be potentially harmful to market stability or the legitimate interests of supervised and other entities, it may be appropriate to limit the extent of such transparency. Limiting transparency in selected areas needs to be seen, however, in the context of a generally transparent environment.
8. In the case of monetary policy, the rationale for limiting some types of disclosure arises because it could adversely affect the decision-making process and the effectiveness of policies. Similarly, exchange rate policy considerations, notably, but not exclusively, in countries with fixed exchange rate regimes, may provide justification for limiting certain disclosure practices. For example, extensive disclosure requirements about internal policy discussion on money and exchange market operations might disrupt markets, constrain the free flow of discussion by policymakers, or prevent the adoption of contingency plans. Thus, it might be inappropriate for central banks to disclose internal deliberations and documentation, and there are circumstances in which it would not be appropriate for central banks to disclose their near-term monetary and exchange rate policy implementation tactics and provide detailed information on foreign exchange operations. Similarly, there may be good reasons for the central bank (and financial agencies) not to make public their contingency plans, including possible emergency lending.
9. Additional concerns could be posed by some aspects of the transparency of financial policies. Moral hazard, market discipline, and financial market stability considerations may justify limiting both the content and timing of the disclosure of some corrective actions and emergency lending decisions, and information pertaining to market and firm-specific conditions. In order to maintain access to sensitive information from market participants, there is also a need to safeguard the confidentiality and privacy of information on individual firms (commonly referred to as “commercial confidentiality”). Similarly, it may be inappropriate for financial authorities to make public their supervisory deliberations and enforcement actions related to individual financial institutions, markets, and individuals.
10. Transparency practices differ not only in substance, but also in form. With regard to informing the public about monetary and financial institutions and their policies, an important issue concerns the modalities that these public disclosures should take. In particular with regard to monetary policy, should transparency practices have a legislative basis in a central bank law, or be based in other legislation or regulation, or be adopted through other means? The Code takes a pragmatic approach to this issue and recognizes that a variety of arrangements can lead to good transparency practices. On matters pertaining to the roles, responsibilities, and objectives of central banks (and for principal financial regulatory agencies), it recommends that key features be specified in the authorizing legislation (e.g., a central bank law). Specifying some of these practices in legislation gives them particular prominence and avoids ad hoc and frequent changes to these important aspects of the operations of central banks and relevant financial agencies. Information about other transparency aspects, such as how policy is formulated and implemented and the provision of information, can be presented in a more flexible manner. However, it is important that such information be readily accessible, so that the public can with reasonable effort obtain and assimilate the information.
11. In the context of good governance and accountability, as well as the promotion of efficient markets, reference to the public in this code should ideally encompass all interested individuals and institutions. In some cases, particularly for financial policies, it may be expedient for the purposes of administering or implementing certain regulations and policies to define the concept of the public more narrowly to refer only to those individuals and institutions that are most directly affected by the regulations and policies in question.
12. The focus of the Code is on transparency. While good transparency practices for the formulation and reporting of monetary and financial policies help to contribute to the adoption of sound policies, the Code is not designed to offer judgments on the appropriateness or desirability of specific monetary or financial policies or frameworks that countries should adopt. Transparency is not an end in itself, nor is transparency a substitute for pursuing sound policies; rather, transparency and sound policies are better seen as complements. In the realm of financial policies, there are complements to this code that go beyond transparency to promote good policies, notably the Core Principles for Effective Banking Supervision formulated by the Basel Committee for Banking Supervision, the Objectives and Principles of Securities Regulation formulated by the International Organization of Securities Commissions (IOSCO), and standards being developed by the Committee on Payment and Settlement Systems (CPSS), the International Association of Insurance Supervisors (IAIS), and the International Accounting Standards Committee (IASC). As these and other financial sector groupings develop and make significant adjustments in their principles and standards as they relate to transparency practices for financial agencies (e.g., in data dissemination requirements for financial agencies), this Code may have to be adjusted accordingly.
13. The Code is directed at the transparency requirements of central banks and financial agencies, not at the transparency procedures relating to firms and individual institutions. However, the benefits of transparency for monetary and financial policies may be fostered by appropriate policies to promote transparency for markets in general, for the institutions that are being supervised, and for self-regulatory organizations.
14. Monetary and financial policies are interrelated and often mutually reinforcing, with the health of the financial system affecting the conduct of monetary policy and vice versa. However, the institutional arrangements for these two types of policies differ considerably, particularly with regard to their roles, responsibilities, and objectives and their policy formulation and implementation processes. To take account of this, the Code is separated into two parts: good transparency practices for monetary policy by central banks; and good transparency practices for financial policies by financial agencies. The basic elements of transparency for both policies are, however, similar. It should be recognized that not all transparency practices are equally applicable to all financial agencies, and the transparency objectives among different financial sectors vary. For some, the emphasis is on market efficiency considerations, for others the focus is on market and systemic stability, while for others the principal consideration is client-asset protection.
15. The operation of a country’s payment system affects the conduct of monetary policies and the functioning of the financial system, and the design of payment systems has implications for systemic stability. The institutional structures of the payment system, however, are often significantly more complex than for monetary and other financial policies, and differ considerably across countries. In many instances, the operation of a country’s payment system is split between the public and private sectors, including self-regulatory bodies. Nevertheless, most of the transparency practices listed in the Code for financial agencies are applicable for the roles and functions of central banks or other relevant public agencies exercising responsibility for overseeing the nation’s payment systems. The coverage of transparency practices for financial policies in the Code includes those for the operation of systemically important components of the nation’s payment system, and, where appropriate, makes allowance for the special nature of the payment system’s operations (e.g., 5.3).
16. The Code is of sufficient breadth
to span and be applied to a wide range of monetary and financial frameworks,
and thus to the full range of the Fund membership. Elements of the Code are
drawn from a review of good transparency practices used in a number of
countries and discussed in the professional literature. The Code thus
represents a distillation of concepts and practices that are already in use and
for which there is a record of experience. The manner in which transparency is
applied and achieved, however, may differ, reflecting different institutional
arrangements with respect to monetary and financial policies and legal
traditions. The good transparency practices contained in the Code will,
therefore, have to be implemented flexibly and over time to take account of a
country’s particular circumstances. A number of Fund members currently lack
sufficient resources and the institutional capacity to implement all of the
good transparency practices listed in the Code. These practices are included in
the Code in the anticipation that countries would aspire over time to introduce
such good practices.
I. Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy
ultimate objective(s) and institutional framework of monetary policy should be
clearly defined in relevant legislation or regulation, including, where
appropriate, a central bank law.|
|1.1.1||The ultimate objective(s) of monetary policy should
be specified in legislation and publicly disclosed and explained.|
|1.1.2||The responsibilities of the central bank should be
specified in legislation.|
|1.1.3||The legislation establishing the central bank should
specify that the central bank has the authority to utilize monetary policy
instruments to attain the policy objective(s).|
|1.1.4||Institutional responsibility for foreign exchange
policy should be publicly disclosed.|
|1.1.5||The broad modalities of accountability for the
conduct of monetary policy and for any other responsibilities assigned to the
central bank should be specified in legislation.|
|1.1.6||If, in exceptional circumstances, the government has
the authority to override central bank policy decisions, the conditions under
which this authority may be invoked and the manner in which it is publicly
disclosed should be specified in legislation.|
|1.1.7||The procedures for appointment, terms of office, and
any general criteria for removal of the heads and members of the governing body
of the central bank should be specified in legislation.|
|1.2||The institutional relationship
between monetary and fiscal operations should be clearly defined.2|
|1.2.1||If credits, advances, or overdrafts to the
government by the central bank are permitted, the conditions when they are
permitted, and any limits thereof, should be publicly disclosed.|
|2.2.2||The amounts and terms of credits, advances, or
overdrafts to the government by the central bank and those of deposits of the
government with the central bank should be publicly disclosed.|
|1.2.3||The procedures for direct central bank participation
in the primary markets for government securities, where permitted, and in the
secondary markets, should be publicly disclosed.|
|1.2.4||Central bank involvement in the rest of the economy
(e.g., through equity ownership, membership on governing boards, procurement,
or provision of services for fee) should be conducted in an open and public
manner on the basis of clear principles and procedures.|
|1.2.5||The manner in which central bank profits are
allocated and how capital is maintained should be publicly disclosed.|
roles performed by the central bank on behalf of the government should be
|1.3.1||Responsibilities, if any, of the central bank in (i)
the management of domestic and external public debt and foreign exchange
reserves, (ii) as banker to the government, (iii) as fiscal agent of the
government, and (iv) as advisor on economic and financial policies and in the
field of international cooperation, should be publicly disclosed.|
|1.3.2||The allocation of responsibilities among the central
bank, the ministry of finance, or a separate public agency,3 for the primary debt issues,
arrangements, depository facilities, and clearing and settlement arrangements
for trade in government securities, should be publicly disclosed.|
II. Open Process for Formulating and Reporting Monetary Policy Decisions
framework, instruments, and any targets that are used to pursue the objectives
of monetary policy should be publicly disclosed and explained.|
|2.1.1||The procedures and practices governing monetary
policy instruments and operations should be publicly disclosed and
|2.1.2||The rules and procedures for the central
bank’s relationships and transactions with counterparties in its monetary
operations and in the markets where it operates should be publicly
|2.2||Where a permanent monetary policy
making body meets to assess underlying economic developments, monitor progress
toward achieving its monetary policy objective(s), and formulate policy for the
period ahead, information on the composition, structure, and functions of that
body should be publicly disclosed.|
|2.2.1||If the policy making body has regularly scheduled
meetings to assess underlying economic developments, monitor progress toward
achieving its monetary policy objective(s), and formulate policy for the period
ahead, the advance meeting schedule should be publicly disclosed.|
the setting of monetary policy instruments (other than fine-tuning measures)
should be publicly announced and explained in a timely manner.|
|2.3.1||The central bank should publicly disclose, with a
preannounced maximum delay, the main considerations underlying its monetary
central bank should issue periodic public statements on progress toward
achieving its monetary policy objective(s) as well as prospects for achieving
them. The arrangements could differ depending on the monetary policy framework,
including the exchange rate regime.|
|2.4.1||The central bank should periodically present its
monetary policy objectives to the public, specifying, inter alia, their
rationale, quantitative targets and instruments where applicable, and the key
|2.4.2||The central bank should present to the public on a
specified schedule a report on the evolving macroeconomic situation, and their
implications for its monetary policy objective(s).|
proposed substantive technical changes to the structure of monetary
regulations, there should be a presumption in favor of public consultations,
within an appropriate period.|
regulations on data reporting by financial institutions to the central bank for
monetary policy purposes should be publicly disclosed.|
III. Public Availability of Information on Monetary Policy
|3.1||Presentations and releases of central bank data should meet the standards
related to coverage, periodicity, timeliness of data and access by the public
that are consistent with the International Monetary Fund’s data
central bank should publicly disclose its balance sheet on a preannounced
schedule and, after a predetermined interval, publicly disclose selected
information on its aggregate market transactions.|
|3.2.1||Summary central bank balance sheets should be
publicly disclosed on a frequent and preannounced schedule. Detailed central
bank balance sheets prepared according to appropriate and publicly documented
accounting standards should be publicly disclosed at least annually by the
|3.2.2||Information on the central bank’s monetary
operations, including aggregate amounts and terms of refinance or other
facilities (subject to the maintenance of commercial confidentiality) should be
publicly disclosed on a preannounced schedule.|
|3.2.3||Consistent with confidentiality and privacy of
information on individual firms, aggregate information on emergency financial
support by the central bank should be publicly disclosed through an appropriate
central bank statement when such disclosure will not be disruptive to financial
|3.2.4||Information about the country’s foreign
exchange reserve assets, liabilities and commitments by the monetary
authorities should be publicly disclosed on a preannounced schedule, consistent
with the International Monetary Fund’s Data Dissemination
central bank should establish and maintain public information
|3.3.1||The central bank should have a publications program,
including an Annual Report.|
|3.3.2||Senior central bank officials should be ready to
explain their institution’s objective(s) and performance to the public,
and have a presumption in favor of releasing the text of their statements to
regulations issued by the central bank should be readily available to the
IV. Accountability and Assurance of Integrity by the Central Bank
of the central bank should be available to appear before a designated public
authority to report on the conduct of monetary policy, explain the policy
objective(s) of their institution, describe their performance in achieving
their objective(s), and, as appropriate, exchange views on the state of the
economy and the financial system.|
central bank should publicly disclose audited financial statements of its
operations on a preannounced schedule.|
|4.2.1||The financial statements should be audited by an
independent auditor. Information on accounting policies and any qualification
to the statements should be an integral part of the publicly disclosed
|4.2.2||Internal governance procedures necessary to ensure
the integrity of operations, including internal audit arrangements, should be
|4.3||Information on the expenses and revenues in operating the central bank should
be publicly disclosed annually.|
|4.4||Standards for the conduct
of personal financial affairs of officials and staff of the central bank and
rules to prevent exploitation of conflicts of interest, including any general
fiduciary obligation, should be publicly disclosed.|
|4.4.1||Information about legal protections for officials
and staff of the central bank in the conduct of their official duties should be
GOOD TRANSPARENCY PRACTICES FOR FINANCIAL POLICIES BY FINANCIAL AGENCIES4
V. Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies
|5.1||The broad objective(s) and
institutional framework of financial agencies should be clearly defined,
preferably in relevant legislation or regulation.|
|5.1.1||The broad objective(s) of financial agencies should
be publicly disclosed and explained.|
|5.1.2||The responsibilities of the financial agencies and
the authority to conduct financial policies should be publicly disclosed.|
|5.1.3||Where applicable, the broad modalities of
accountability for financial agencies should be publicly disclosed.|
|5.1.4||Where applicable, the procedures for appointment,
terms of office, and any general criteria for removal of the heads and members
of the governing bodies of financial agencies should be publicly disclosed.|
relationship between financial agencies should be publicly disclosed.|
of oversight agencies with regard to payment systems should be publicly
|5.3.1||The agencies overseeing the payment system should
promote the timely public disclosure of general policy principles (including
risk management policies) that affect the robustness of systemically important
financial agencies have oversight responsibilities for self-regulatory
organizations (e.g., payment systems), the relationship between them should be
self-regulatory organizations are authorized to perform part of the regulatory
and supervisory process, they should be guided by the same good transparency
practices specified for financial agencies.|
VI. Open Process for Formulating and Reporting of Financial Policies
conduct of policies by financial agencies should be transparent, compatible
with confidentiality considerations and the need to preserve the effectiveness
of actions by regulatory and oversight agencies.|
|6.1.1||The regulatory framework and operating procedures
governing the conduct of financial policies should be publicly disclosed and
|6.1.2||The regulations for financial reporting by financial
institutions to financial agencies should be publicly disclosed.|
|6.1.3||The regulations for the operation of organized
financial markets (including those for issuers of traded financial instruments)
should be publicly disclosed.|
|6.1.4||Where financial agencies charge fees to financial
institutions, the structure of such fees should be publicly disclosed.|
|6.1.5||Where applicable, formal procedures for information
sharing and consultation between financial agencies (including central banks),
domestic and international, should be publicly disclosed.|
|6.2||Significant changes in financial policies should be publicly announced and
explained in a timely manner.|
agencies should issue periodic public reports on how their overall policy
objectives are being pursued.|
proposed substantive technical changes to the structure of financial
regulations, there should be a presumption in favor of public consultations,
within an appropriate period.|
VII. Public Availability of Information on Financial Policies
agencies should issue a periodic public report on the major developments of the
sector(s) of the financial system for which they carry designated
|7.2||Financial agencies should seek to
ensure that, consistent with confidentiality requirements, there is public
reporting of aggregate data related to their jurisdictional responsibilities on
a timely and regular basis.|
applicable, financial agencies should publicly disclose their balance sheets on
a preannounced schedule and, after a predetermined interval, publicly disclose
information on aggregate market transactions.|
|7.3.1||Consistent with confidentiality and privacy of
information on individual firms, aggregate information on emergency financial
support by financial agencies should be publicly disclosed through an
appropriate statement when such disclosure will not be disruptive to financial
agencies should establish and maintain public information services.|
|7.4.1||Financial agencies should have a publications
program, including a periodic public report on their principal activities issued at least
|7.4.2||Senior financial agency officials should be ready to
explain their institution’s objective(s) and performance to the public,
and have a presumption in favor of releasing the text of their statements to
regulations and any other generally applicable directives and guidelines issued
by financial agencies should be readily available to the public.|
there are deposit insurance guarantees, policy-holder guarantees, and any other
client asset protection schemes, information on the nature and form of such
protections, on the operating procedures, on how the guarantee is financed, and
on the performance of the arrangement, should be publicly disclosed.|
financial agencies oversee consumer protection arrangements (such as dispute
settlement processes), information on such arrangements should be publicly
VIII. Accountability and Assurance of Integrity by Financial Agencies
of financial agencies should be available to appear before a designated public
authority to report on the conduct of financial policies, explain the policy
objective(s) of their institution, describe their performance in pursuing their
objective(s), and, as appropriate, exchange views on the state of the financial
applicable, financial agencies should publicly disclose audited financial
statements of their operations on a preannounced schedule.|
|8.2.1||Financial statements, if any, should be audited by
an independent auditor. Information on accounting policies and any
qualification to the statements should be an integral part of the publicly
disclosed financial statements.|
|8.2.2||Internal governance procedures necessary to ensure
the integrity of operations, including internal audit arrangements, should be
applicable, information on the operating expenses and revenues of financial
agencies should be publicly disclosed annually.|
for the conduct of personal financial affairs of officials and staff of
financial agencies and rules to prevent exploitation of conflicts of interest,
including any general fiduciary obligation, should be publicly
|8.4.1||Information about legal protections for officials
and staff of financial agencies in the conduct of their official duties should
be publicly disclosed.|
Definitions of Certain Terms
To facilitate presentation, certain general terms are used to capture different institutional arrangements in a summary fashion. The following descriptive definitions are used in the Code.
The institutional arrangements for assigning responsibility for the conduct of a country’s monetary policy differ among the Fund’s membership. For most Fund members, this responsibility is assigned to the central bank or to a system of constituent national central banks in a multinational central bank arrangement. There are a number of countries, however, where this role is designated to a “monetary authority” or to a “currency board.” To facilitate presentation, the term “central bank” in the Code refers to the institution responsible for conducting monetary policy, which may or may not be a central bank.
A wide range of institutional arrangements prevail among Fund members with regard to which unit of government carries exclusive or primary responsibility for the regulation, supervision, and oversight of the financial and payment systems. In a few countries, an agency has been established with responsibility for regulating and supervising an array of financial institutions (banking, insurance, and securities firms) and markets (securities, derivatives, and commodity futures). For most countries, the oversight responsibility for the financial sector is shared among several agencies. Thus, responsibility for the conduct of bank regulation and supervision or for bank deposit insurance policies in some countries is assigned to the central bank, or to an independent bank supervisory or deposit insurance agency, or split among several units of government. Similarly, responsibility for the conduct of policies related to the oversight of certain categories of financial institutions is assigned to the central bank or to a specialized agency. In some cases (e.g., payment systems) a public agency oversees the activities of private sector self-regulatory bodies. To facilitate presentation, the phrase “financial agencies” is used to refer to the institutional arrangements for the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, with the view to promoting financial stability, market efficiency, and client-asset and consumer protection. (Where the central bank carries responsibility for financial policies, some of the good transparency practices listed for financial agencies in Sections VBVIII of the Code are already specified in the transparency practices listed for central banks in Sections IBIV of the Code.)
The term “financial policies” in the Code refers to policies related to the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, with the view to promoting financial stability, market efficiency, and client-asset and consumer protection.
Unless a particular unit of government is specifically identified in the
Code, reference to “government” in the Code refers either to the
executive branch of government or to a particular ministry or public agency,
depending on the issue at hand or the established tradition of government in
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Glossary of Key Terms
|Australia||Australian Prudential Regulation Authority||www.apra.gov.au|
|Belgium||Banking and Finance Commission||www.cbfa.be|
|Canada||Office of the Superintendent of Financial Institutions||www.osfi-bsif.gc.ca|
|Chile||Superintendencia de Valores y Seguros
(Superintendency of Securities and Insurance)
|Denmark||Finanstilsynet (Danish Financial Supervisory Authority)||www.ftnet.dk|
|Ecuador||Superintendencia de Bancos (Superintendency of Banks)||www.superban.gov.ec|
|El Salvador||Superintendencia del Sistema Financiero
(Superintendency of the Financial System)
|Finland||Financial Supervision Authority||www.rata.bof.fi|
|Hungary||Hungarian Banking and Capital Market Supervision|
|Iceland||Financial Supervisory Authority||www.fme.is/fme.nsf/pages/index.html|
|Japan||Financial Supervisory Agency||www.fsa.go.jp|
|Korea||Financial Supervisory Service||www.fsc.go.kr/cframe.asp|
|Malta||Malta Financial Services Centre||www.mfsc.com.mt|
|Mexico||National Banking and Securities Commission|
|Nicaragua||Superintendencia de Bancos y de Otras Instituciones Financieras (Superintendency of Banks and Other Financial Institutions)||None|
|Norway||The Banking, Insurance and Securities Commision of Norway||www.kredittilsynet.no|
|Peru||Superintendencia de Banca y Seguros (Superintendency of Banks and Insurance)||www.sbs.gob.pe|
|Singapore||Monetary Authority of Singapore||www.mas.gov.sg|
|South Africa||Financial Services Board||www.fsb.co.za|
|Sweden||Finansinspektionen (Swedish Financial Supervisory Authority)||www.fi.se|
|United Kingdom||Financial Services Authority||www.fsa.gov.uk|
1 Henceforth the Code will be
referred to as the MFP Transparency Code.
Footnotes for Appendix I
1 In addition to the Bank for
International Settlements, the following international and regional
organizations and international financial sector groupings were consulted:
Basel Committee on Bank Supervision (BCBS), Center for Latin American Monetary
Studies (CEMLA), Committee on Payment and Settlement Systems (CPSS), European
Central Bank, International Association of Insurance Supervisors (IAIS),
International Finance Corporation, International Organization of Securities
Commissions (IOSCO), Organization for Economic Cooperation and Development
(OECD), and the World Bank.
Footnotes for Appendix II
1 A number of standards are listed in Financial Stability Forum, 1999, Compendium of Standards, (www.fsforum.org/Standards/Home.html), (Basel).