IMF introduces transparency code for CBN to boost policy effectiveness

In a significant move to enhance the transparency and accountability of central banks worldwide, the International Monetary Fund (IMF) has unveiled the Central Bank Transparency Code (CBT).

This international code is designed to help central banks and their stakeholders align their transparency practices with global best practices. The CBT, according to the IMF, aims to contribute to the effectiveness of policy-making by central banks.

It is structured around a comprehensive 5-pillar framework that addresses transparency principles related to the central bank’s governance, policies, operations, outcomes, and official relations with the government and other entities.

IMF’s latest report emphasises that the CBT provides high-level guidance through its principles and offers detailed transparency practices across three levels: core, expanded, and comprehensive.

This tiered approach allows central banks to progressively enhance their transparency in line with international standards.

The code applies to all central banks within the IMF’s member countries, taking into consideration the diversity of their legal frameworks, governance structures, and stages of economic and financial development.

This flexibility ensures that the CBT can be effectively implemented in various country-specific contexts. IMF’s Managing Director, Kristalina Georgieva highlighted the importance of strong governance and independence for central banks.

She pointed out that central bankers should have autonomy over their budgets and personnel decisions and be protected from dismissal for their policy decisions within their legal mandates.

Georgieva underscored the positive outcomes of clear delineation of responsibilities between central banks and governments, noting that such arrangements have historically led to better inflation control, improved growth and employment rates, and reduced financial stability risks.

“The IMF is here to help policymakers face these challenges. We strongly support central bank independence, providing tailored technical assistance to members working to improve governance and legal frameworks. We make independence an explicit pillar in some Fund-supported financing programs, agreeing with members on actions to measure and achieve it,” she said.

Georgieva said, “To strengthen this work, we introduced a new way to measure independence based on which aspects of it matter most, according to our recent survey of central banks. And to increase accountability, we have developed a transparency code that helps central banks assess and improve their practices.”

Furthermore, she said, “By working together—central bankers and government leaders, legislatures, and the people—we can preserve and strengthen central banks to win the fight against inflation today and foster economic stability and growth for years to come.”

Central bankers are facing mounting challenges to their autonomy, with increasing calls for premature interest-rate cuts amid global voting trends. The risks of political interference in banks’ decision-making processes and personnel appointments are on the rise, prompting calls for governments and central bankers to resist these pressures.

An IMF study spanning from 2007 to 2021, analysing numerous central banks, indicates that those with robust independence scores were more adept at maintaining stable inflation expectations among the populace, thereby contributing to keeping inflation levels low. The importance of independence has grown significantly across countries of all income levels.