2 - On Transparency

Summary

Introduction

Norges Bank's Executive Board has decided that the key policy rate now should be 1.5 percent. If economic developments are broadly in line with projections, the appropriate key policy rate will be 2.75 percent around the end of next year.

If I had made this statement ten years ago, it would have constituted a breach of confidentiality. Norges Bank considered this to be highly sensitive information. Had I been deputy chairman of the U.S. Federal Reserve Board twenty years ago, I would not even have been entitled to reveal the latest interest rate decision. Today, this sounds rather odd. Transparency is now taken for granted among central banks and in other areas of society.

In London in 1780, the Bank of England was put to a test. In Parliament, Lord Gorden attempted to stop a bill to restore civil rights to Catholics. He drew support from large numbers. Rioting led to the destruction of several public buildings. When an attack was launched against the Bank of England, the building was secured like a fortress and withstood the onslaught, hence the phrase “as safe as the Bank of England.” Through the years, the phrase has been simplified into “as safe as the bank.” As banks and central banks store gold and money in their vaults, their edifices have always been solid, protected by thick walls. In a figurative sense, it might be said that a safe and credible national monetary value relied for a long time on thick central bank walls insulating its internal workings from the general public.

Until our time, central banks have been closed, both physically and figuratively. Central banks were shrouded in an aura of mystique, which they probably had a hand in perpetuating. Central bank governors worldwide refrained from saying too much, and what they did say often sounded cryptic.

In Norway, monetary policy was probably also perceived by many as something mysterious and remote. In the Festschrift for former Norges Bank governor Hermod Skånland, Professor Preben Munthe writes the following:

There is a tradition that expects central bank governors to be parsimonious with words. This built up the aura that should surround a man in that position. He possessed knowledge about the secret black box – monetary policy with a capital M – and how it functioned.