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Good Transparency Practices for Monetary Policy by Central Banks

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Good Transparency Practices for Monetary Policy by Central Banks (IMF) 

Summary Advice: The IMF outlines desirable transparency practices for central banks in their conduct of monetary and financial policies.

Main Points:   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.

The IMF provides the following recommendations for Monetary Policy by Central Banks:

Firstly,  authorities must ensure clarify of Roles, Responsibilities and Objectives of Central Banks for Monetary Policy.

  1. The 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. 
  2. The institutional relationship between monetary and fiscal operations should be clearly defined.
  3. Agency roles performed by the central bank on behalf of the government should be clearly defined.

Secondly, an open process for Formulating and Reporting Monetary Policy Decisions must be established.

  1. The framework, instruments, and any targets that are used to pursue the objectives of monetary policy should be publicly disclosed and explained.  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. 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.
  3. Changes in the setting of monetary policy instruments (other than fine-tuning measures) should be publicly announced and explained in a timely manner.
  4. The 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.
  5. For proposed substantive technical changes to the structure of monetary regulations, there should be a presumption in favor of public consultations, within an appropriate period.
  6. The regulations on data reporting by financial institutions to the central bank for monetary policy purposes should be publicly disclosed.

Thirdly, information on Monetary Policy must be made available to the public.

  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 dissemination standards.
  2. The 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. The central bank should establish and maintain public information services.

Lastly, the Central Bank must report on Accountability and provide Assurances of Integrity.

  1. Officials 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.
  2. The central bank should publicly disclose audited financial statements of its operations on a preannounced schedule.
  3. 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. Information on the expenses and revenues in operating the central bank should be publicly disclosed annually.

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.

Source:  IMF (1999). IMF, “ Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles”  Interim Committee on Monetary and Financial Policies, IMF, at http://www.imf.org/external/np/mae/mft/code/index.htm#goodtrans (accessed 31 March, 2013).

Page Created By: Khilola B. Zakhidova. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

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