Speaking to public in plain and concise form promoted at all star central bank conference

The world’s top central banks have taken their fair share of criticism not only for adopting unconventional policies following the financial crisis but also for failing to explain the unorthodox measures they were taking in language that could be understood by the general public. It is clear they have learned the lesson from that.

Following are a couple of takeaways I made from watching the world’s leading policymakers discuss central bank communications at a recent all-star conference on this topic at the European Central Bank.

  • Major central banks such as the Federal Reserve, ECB, Bank of England and Bank of Japan clearly understand that they need to be clearly understood to influence public expectations and remain credible. Code words and convoluted language have fallen out of fashion. Plain talk in simple language is the new trick of the trade.
  • Despite the push for greater transparency and clarity in communications, policymakers — constantly faced with a wide array of economic uncertainties — are unlikely to provide the degree of certainty on the future policy path that markets have generally been longing for.
  • To make complex forecast and policy messages accessible to the wider public, central banks increasingly tailor the content of their pronouncements to the requirements of each communication tool they are using, and to the audience watching that particular channel of communication. The BoE has dubbed this technique “layering”.
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Below is a selection of key quotes from a policy panel debate — led by Bank of England’s Mark Carney, ECB’s Mario Draghi, Bank of Japan’s Haruhiko Kuroda, and Federal Reserve’s Janet Yellen — that I personally considered in any way interesting and inspiring:

Haruhiko Kuroda, Bank of Japan

“Communication is not a matter of technique … it is a matter of policy itself. From my experience in the last 4-1/2 years, the best communication policy is to explain in straight words the content and intent of your monetary policy which can be understood not just by monetary experts and economists, but also the general public.”

Janet Yellen, Federal Reserve

“We try not only to explain what changed about the economic outlook that justified (our policy action) but also the objectives we are trying to achieve. For the broader public, as opposed to market participants, the most important thing to know is what it is that we are trying to achieve?

They do want to know that we are committed to our 2 percent inflation objective, that we want to achieve our employment mandate. We will readjust these (policy) instruments as we think necessary in light of those policy goals, that’s are our commitment.

But I do think that market participants are looking for greater certainty about the policy path than central bankers believe is appropriate to offer most of the time.”

Mark Carney, Bank of England

“Look at what we put out: a 50-page Inflation Report, we still communicate in 15-page speeches with lots of charts, expert audiences read them, understand, digest, respond to them, that’s true, but that’s not the way to communicate with the general public. This is not a sustainable form of communicating in a world that has had enough of experts, it is also not consistent with how people access information.

(To make information accessible), you have to change the content. What we have tried to do … is to layer the content, so you have a very simple message that is tweet-able, that can go out on whatever decision is made… and to take a 50-page Inflation Report and reduce it down to a relatively simple narrative with icons, key charts that explain why we did what we did, and then to use multiple channels in order for that to get out.

In order to be as effective as possible on speaking with the broader public and actually ultimately getting to a dialog as opposed to a monolog with them, we need different channels, we need different content, but we need that change within the institution, and you only get that if you open it up to a broader number of people that just those at the top.”

Sri Lanka stresses benefits of clear communication

Sri Lanka’s top policymaker underscored the importance of clear and consistent communication in managing the public’s expectations about inflation.

Nandalal Weerasinghe, Senior Deputy Governor at the Central Bank of Sri Lanka, noted in a speech on Evolution of Monetary and Exchange Rate Policy in Sri Lanka and the Way Forward:

“… the intent of the Central Bank to maintain inflation at mid-single digit levels, which was made clear through action as well as through communication, enabled the Central Bank to change the mindset of the people that Sri Lanka is typically an economy with double digit inflation. The change in the mindset was visible in improving inflation expectations … Sri Lanka’s achievement of single digit inflation for 105 consecutive months had little to do with monetary aggregate targeting. Instead, it was a result of the Central Bank’s ability to anchor inflation expectations, by repeatedly emphasising its utmost desire to maintain inflation at mid-single digit levels.”


The Central Bank’s plan to fully implement what it calls “flexible inflation targeting” by 2020 will require, as Weerasinghe put it, "increased efforts" to build all the necessary preconditions for success. Increasing transparency will be key in this regard:

A key advantage of inflation targeting is that it is easier for the general public to relate to. Since inflation is well understood by the public, the inflation forecast will serve as an ideal anchor and, with improved communication, will help bridge the information gap between the central bank and the public. Reference to such a straightforward target, rather than to an elusive monetary target, will ensure increased transparency and accountability while enabling the public to understand policy shortcomings.


The next step in increasing the Central Bank's forecast transparency will be the publication of comprehensive Inflation Reports, expected by 2020:

“The Inflation Report will explain inflation developments, inflation expectations, projections for inflation and other key macroeconomic variables, the assumptions behind such projections, reasons for any deviation of actual inflation developments from targeted levels, and remedial actions to be taken in the case of deviations.”

I have advised Sri Lanka's central bank on policy communications and think that its experience, if successful in evolving into an inflation targeter in the coming years, may inform the initiatives of other developing countries' central banks which have been switching to more forward-looking policy frameworks.

Czech governor breaks central banking communications etiquette as he receives award

Czech National Bank Governor Jiri Rusnok blundered when receiving the Central Bank Governor of the Year Award for Central and Eastern Europe 2017 by Global Markets for “managing the removal of a three-year cap on the koruna with a minimum of market disruption”.

In his acceptance address posted on the Czech central bank’s website, Rusnok — a former politician just over a year in the top job — said with a subtle half-smile on his face:

“Along with the Swiss National Bank and the Bank of Israel, the Czech National Bank is the only central bank in modern history to have used the exchange rate so significantly as the main instrument of monetary policy. As is well known, the Swiss exit didn’t go too well. The Swiss National Bank is certainly not winning any awards for it, nor it is likely to.”

With those words, Rusnok seemed to mock his Swiss colleagues for failing to engineer a smooth exit from their exchange rate floor in January 2015.

The unspoken convention of central banking communications has long been that central bankers from one country do not tell their colleagues from another country what kind of policy should they pursue, nor do they criticise publicly their policy actions and pronouncements.

Rusnok’s words could be seen as breaking the etiquette. Absolutely unnecessary.

Never ending debate: Does central bank transparency do more harm than good?

A paper by two Swiss National Bank economists has cast doubt on the benefits of greater central bank transparency and increased communication in enhancing the predictability of monetary policy.

Thomas Lustenberger and Enzo Rossi, in their paper titled “Does Central Bank Transparency and Communication Affect Financial and Macroeconomic Forecasts?”, conclude that central bank openness and too frequent talk by policymakers tend to confuse private forecasters, causing errors in their interest rate forecasts.

The paper provides yet another contribution into the seemingly endless debate among academics and practitioners about the benefits and drawbacks of the shift towards greater transparency and more frequent communication in central banking over the past two decades.

As one would intuitively expect, and I completely agree with based on my experience in working with a number of central banks across the developing world, the paper suggests that there is no single, one-size-fits-all model for transparency and that its effects that vary greatly across countries and variables.

That said, the paper makes a number of important points that are worth considering by policymakers and communication managers in developing countries’ central banks aspiring to raise their policy transparency and enhance communication.

Don’t expect wonders from greater transparency:

  • central bank openness is not an effective instrument to improve the accuracy of private forecasts;
  • the publication of voting records is even detrimental to the quality of interest-rate forecasts;
  • more transparency contributes to aligning single forecasts with each other. From this perspective, transparency seems to provide the anchor by which agents’ forecasting actions are coordinated.

Don’t presume more talk is always better than less talk:

  • the verdict about the frequency of central bank communication is unambiguous. More communication produces forecast errors and increases their dispersion;
  • speaking less may be beneficial for central banks that want to raise predictability and homogeneity among financial and macroeconomic forecasts. We provide some evidence that this may be particularly true for central banks whose transparency level is already high;
  • a higher turnover of governors tends to reduce the precision of interest-rate and inflation forecasts. Greater central bank independence also tends to worsen the quality of forecasts, perhaps by increasing the size of monetary policy committees that may lead to cacophony.

Policy implications of greater transparency and enhanced communication

“… the policy implications are not clear-cut. If the policy objective is to get forecasters to provide more-precise forecasts, our results suggest that transparency is not an adequate tool to achieve it. However, if the objective is to align individual forecasts, then the general normative implication seems to be an increase in transparency.”

“… in order to improve the quality of forecasts of variables that are central to monetary policymaking and align them among professional forecasters, central banks ought to speak less often, especially those that have already achieved a certain degree of transparency.”

Caveat: Don’t read too much into the results of this study…

One important caveat is in order, a point made by the authors themselves: The study and its framework cannot be seen as definitely answering the question whether more or less communication is desirable and whether the degree of transparency should be increased or lowered.

“Our paper only studies the effect of communication and transparency on forecast accuracy and dispersion. Although the impact of communication and transparency on this dimension is important, there may be many other beneficial (or harmful) effects of giving public speeches or being transparent on, for instance, accountability, the public’s understanding of monetary policy, and trust in the central bank.”

Very true. One can never underestimate the benefits of well-designed communication in promoting the understanding of monetary policy, and with it developing public trust in the central bank.

Fresh contribution to settling “The Inflation Targeting Debate”

The inconclusive debate among academic economists about the merits and macroeconomic consequences of inflation targeting (IT) has just received a fresh impetus that is particularly relevant for developing countries aspiring to adopt IT.

The proponents of IT have argued that enhanced transparency and accountability associated with this monetary policy framework allow IT central banks to more firmly anchor inflation expectations. This is providing policymakers with more room to expand the economy in the face of adverse shocks without jeopardizing the credibility of monetary policy.

A recent IMF working paper, titled “Settling the Inflation Targeting Debate: Lights from a Meta-Regression Analysis”, has offered the following key findings on “The Inflation Targeting Debate”:

“… IT adoption is likely to bear more fruits (price and output stability) when fully implemented in developing countries. Indeed, monetary policy credibility has yet to be earned in these countries, such that a successful implementation of IT may help anchor inflation expectations more firmly and close the credibility gap.

But key preconditions need to be met for IT to yield beneficial effects, including notably sound fiscal positions, deep financial system, and greater exchange rate flexibility.”

Norges Bank’s unconventional cod-themed video goes viral

Norges Bank became the world’s first central bank to tweet an interest rate decision in June 2009. Last week, the central bank of Norway's communications came to the forefront of the international attention again.

Its unconventional communication campaign featuring a fish-themed music video to spread the word about its redesigned 200-krone banknote with the cod as a dominant motif became an online hit internationally. Hundreds of thousands viewed the video on Facebook and YouTube within a few days.

The video traces the journey of fish from the sea to the printing presses to people’s wallets. It even features a cameo by central bank governor Øystein Olsen.

Many international viewers, including fellow central bankers, were amused by the video despite not being able to understand a word. A Norges Bank spokesperson responded to requests for English translation of the lyrics:

I am afraid this text will be lost in translation. There are a number of rhymes and references to Norwegian popular culture that are impossible to convey to an international audience.

Quite naturally, the primary audience for the music video were Norwegians who will be carrying the cod-themed banknotes in their purses.

Creativity of Norges Bank's communication department, which came up with the idea of using a remake of a 1980s comedy song to promote the new banknote, clearly paid off. Thanks to the international media buzz surrounding the music video, there are likely to be very few Norwegians who have not yet heard about the code on the 200-krone banknote.

Watch the video on YouTube below:

'The Old Lady of Threadneedle Street' at forefront of embracing new media

In yet another sign of central banks tailoring their ways of communicating to the new media, the 'The Old Lady of Threadneedle Street' invited members of the public to pose questions to one of the Bank of England’s policymakers on Twitter.

One particular question stood out, in my view, demonstrating the public’s increasing appetite for visual communications by central banks, which is an area where these traditionally text- and spreadsheet-based institutions have lagged behind:

Despite being quite well ahead of many other central banks, the Bank of England is still trailing its U.S. counterpart. At the Federal Reserve, some policymakers, notably Minneapolis Fed President Neel Kashkari, have extensively used social media accounts and blog posts to reach out directly to their audiences.

Chicago Fed lets people create their own currency in a bold move

You can now put yourself on a U.S. dollar. The Federal Reserve Bank of Chicago went as far as to create a special app for iPhone or iPad to allow people to put their own face on a bill.

The Chicago Fed app is part of a wave of entertaining online tools developed by central banks globally to help educate people about complex central banking matters. In this particular case, the idea is to help people learn some interesting things about the security features on currency.

Quite a courageous move by the Chicago Fed. I could very well imagine a central bank being either outright legally prohibited or simply too conservative and unwilling to allow users manipulate banknotes in such way, even on an smartphone screen.

Canada picks its first-ever Bank NOTE-able woman

Viola Desmond, an icon of the human rights and freedoms movement in Canada, will become the first Canadian woman to ever feature on a regularly circulating bank note. Her portrait will be printed on a new $10 Bank of Canada note, expected in late 2018. The selection of Viola Desmond was the final step in the #bankNOTEable campaign to choose an iconic Canadian woman to appear on this new bank note.

Bank of Canada Governor Stephen S. Poloz, in a release on the Bank of Canada’s website:

“It became clear that this search for an iconic woman was engaging Canadians in a very personal way.

Some people looked within their own profession: Engineers googled women engineers. Some of my economist colleagues searched for economists, computer scientists and statisticians. Some people looked at their alma maters—notable women of Queens, or Mount Allison or the University of British Columbia. Other people looked geographically, finding women who represented their part of the country. Teachers used the nomination process as a way to teach children about Canada’s history. School kids told us who they thought should be on the money.

With every mouse click or turn of a book’s page, with every kitchen table discussion or classroom debate, Canadians learned more about the women who built Canada.”

The Bank of Canada has, along with the Bank of Russia, become of the few central banks that have chosen to leverage the use of social media to let the general public have a say in the selection of a bank note design. Both provided useful case studies of how central banks may — at low costs — attract the attention of members of the general public to an issue concerning everyone's wallet, literally.

A communication gap between central bankers and the public

My former colleague, Czech central bank Vice-Governor Mojmir Hampl, in the OMFIF Bulletin on what he called a growing lack of understanding and a communication gap between central bankers and the public:

"... central banks have been warning about the risk of flooding for so long that they are now unable to explain that drought can be just as big a problem. They are also unable to explain that at times of drought you should water the garden, not keep draining it dry. And if the hosepipes are blocked, you must use other means to water the plants.

In tough economic times, it is difficult to describe quickly such a story to a public which is inattentive to the mysteries of complex systems. This is particularly true in the case of financially conservative and wealthy populations who strongly prefer future consumption to present consumption (and even more so in populations of net lenders rather than net borrowers like Germany, Austria or many other countries in central Europe).

This is the challenge which we, as a community of occasionally tedious central bankers, now face. We should hurry up."

Overcoming this challenge will be difficult, but hopefully not impossible...