Sunday, February 15, 2009

Which central bank is the most transparent?

The Fed has been criticized of its lack of transparency in recent policy measures; specifically, it's not forthright with the details of its credit easing policy (similar to quantitative easing, but according to the Fed, it quite different) - raising the balance sheet through reserve creation in order to increase bank liquidity and support various asset classes.

The ECB defines transparency and why it is important explicitly
on their web page:
Transparency means that the central bank provides the general public and the markets with all relevant information on its strategy, assessments and policy decisions as well as its procedures in an open, clear and timely manner....Transparency helps the public to understand the ECB's monetary policy. Better public understanding makes the policy more credible and effective.
This idea of transparency made me ask myself: which central bank is the sneakiest with its policies?

I rank six central banks from sneakiest to least sneaky:
  1. People's Bank of China (PBoC)
  2. Bank of England (BoE)
  3. Bank of Japan (BoJ)
  4. Bank of Canada (BoC)
  5. Federal Reserve (Fed)
  6. European Central Bank (ECB)
Of course, each central bank is engaged in a different policy objective, and the ranking is highly subjective. But given that global central banks are jointly easing, and some central banks are engaged in non-traditional forms of easing - BoE, BoJ, BoC, and Fed - it is nice to know "what's going on". My criterion to judge transparency is simple: the publicly available central bank balance sheet.

1. The PBoC

Of course, the Chinese will be ranked the sneakiest. However, when I visited the
PBoC's website, I was shocked to see that the PBoC even makes a balance sheet available for the english-speaking public. Too bad it's from 2004; five years old, pretty sneaky!

2. The BoE

The BoE's website takes just a little getting used-to (for yours truly, of course), but most of the good stuff is in the
publications link. The BoE announces directly its non-traditional measures, including the new Asset Purchase Facility - the BoE will purchase £50 billion (about 14% of GDP) of various types of assets (commercial paper, corporate bonds, ABS, etc.) - and its currency swaps with the Fed.

Given that the BoE has these non-traditional policies in place, its one-page skeleton outline of a
balance sheet is a little disappointing. Since December 2007, the only new detail is listed under "short-term open market operations", and are the words "One week sterling", "Other maturity within-maintenance", and "period sterling" with no breakdown in the total value.

3. The BoJ

Again, it is a little difficult to find the balance sheet, but most everything that I ever want is under the
statistics link. Given that the BoJ was the first to engage in quantitative easing and is currently adding to that list of non-traditional policy, including currency swaps with the Fed and a new program to purchase corporate debt directly, its balance sheet should be more detailed. However, compared to the BoE, it is surprisingly descriptive.

4. The BoC

The BoC is very transparent, as it headlines new policy measures right on the
homepage. One can immediately see that the BoC is conducting non-traditional policy via the money market facility. The BoC balance sheet is extremely detailed, including a supplemental information link to describe its new lending facilities. However, the balance sheet is released just a one-month.

5. The Fed

I have argued that the Fed is being rather
sneaky, but now I realize that its balance sheet is exceptionally descriptive (although arcane to most) compared to other central banks' statements. One can find the Fed's balance sheet link right on its homepage (the H.4.1 link); and furthermore, the balane sheet is very comprehensive. The balance sheet is long (11 pages), including separate tables for each of its targeted non-banking loans.

The biggest drawback is that one must review each weekly release to find the associated announcement of the newly listed item. For example, only the
January 15th release includes information on the MBS purchase program. But overall, the Fed looks very transparent compared to the previous four central banks.

6. The ECB

The ECB gets the highest marks for one reason only: its
balance sheet is very detailed, especially since ECB policies have been traditional to date. Furthermore, the balance sheet is simple to locate; just go to the "press" tab, and there is the link, "weekly financial statements".

So there you have it: the Fed is comparatively forthright. And according to
Bernanke, a new website will emerge within weeks to improve the Fed's transparency.

Rebecca Wilder

1 comment:

  1. An excellent post. Thanks,

    Don the libertarian Democrat