Neither God nor magician

A number of central banks have been struggling to get their communications right. China's central banks has been one of them. Zhou Xiaochuan, the central bank governor, in a wide-ranging interview with Caixin:

First of all, the central bank definitely has a clear and strong willingness to improve communications with the public and the market. And we did have some very successful communications in the past. However, good communication is never an easy thing.

... uncertainties do exist in the market, which cannot be simply eliminated by some words of assurance. The central bank is neither God nor magician that could just wipe the uncertainties out. Therefore, sometimes the central bank has to say, "Excuse us, but we have to wait for new data inputs."

Zhou Xiaochuan. I met him personally when he visited the Czech National Bank last year.

Zhou Xiaochuan. I met him personally when he visited the Czech National Bank last year.

Right. This is exactly what many central bankers I work with do not fully appreciate: Sometimes it just pays off to admit that you as a central bank simply do not know. That does not mean that a central bank needs to automatically be seen as incompetent among members of the public. All it takes is to begin routinely acknowledging all those risks and uncertainties that central banks are facing when predicting the future course of an economy.

Also, China's governor drew a clear line where the central bank's openness in communication ends:

The central bank has different communication strategies for different market participants. To the general public, the central bank focuses on communications in knowledge and institutional frameworks. For institutions that use foreign exchange, such as importers and exporters, it is important for the central bank to guide and stabilize their expectations. For speculators, however, the central bank views them as rivals in a game, and it is unimaginable for the central bank to reveal its operational strategies to them. This is like a player who will never reveal his next moves to the opponent in a game of chess.

Maybe a little too aggressive vocabulary, but again this is spot on. There clearly are limits to central bank transparency.