Issues in the Governance of Central Banks
The Bank for International Settlements (BIS) today released Issues in the Governance of Central Banks, a report that was prepared by the Central Bank Governance Group under the guidance of its then Chairman, Guillermo Ortiz, now Chairman of the Board of Directors of the BIS.
Given that central banks differ significantly in the nature of their functions and in their socioeconomic environments, the report does not intend to set out a single set of “best practices” but instead seeks to present information that will help decision-makers set up governance arrangements that are most suitable for their own circumstances.
The report highlights that the role of central banks has changed significantly over the years. Changes have often taken place in response to persistent policy problems or severe crises. For example, the need to deal with chronic inflation in the 1970s and 1980s prompted the identification of price stability as a formal central objective and led to a significant reworking of governance arrangements. The current global financial crisis could well have equally important implications for central banks, particularly with respect to their role in fostering financial stability. Although it is far too early to know how central banking will change as a result of the crisis, the report takes an important first step in identifying some of the governance questions that the crisis poses.
Commenting on the report, Stanley Fischer, the new Chairman of the Governance Group, highlighted the importance of having central bank governance arrangements that are adapted to modern economic and financial realities and that contain an effective mixture of independence, transparency and accountability.
The report draws on a large body of information on the design and operation of central banks that the BIS has brought together since it initiated work on central bank governance in the early 1990s. Through a new survey conducted specifically for this report, the central banks and monetary authorities that belong to the Central Bank Governance Network provided updates of essential data.
Below is an overview of the report’s main features.
Questions regarding the content of the report can be sent to the Secretariat of the Central Bank Governance Group by e-mail at cbgovernance@bis.org or by fax to +41 61 280 9100.
Printed copies may be requested by e-mail at publications@bis.org.
About the Central Bank Governance Group
The Governance Group comprises governors from a representative group of central banks and is the steering committee for the Governance Network, a grouping of 47 central banks and monetary authorities devoted to the exchange of views on matters relating to the design and operation of central banks. Their work is supported by a Secretariat at the BIS.
Overview of Issues in the Governance of Central Banks
To ease access to its contents, the report begins with a layering of overview material: the first layer is a short “road map” of topics to guide readers to the various chapters that may be of greatest interest to them; the next is a set of “highlights” of the report’s main themes.
Thereafter, Chapter 1, entitled: “The main tendencies in modern central banking”, offers an overview of the most important elements of central bank governance covered in the rest of the report.
Chapters 2 to 9 cover eight strategic topics sequentially and in depth:
Chapter 2 examines the range of functions historically and currently undertaken by central banks and the specification of objectives for their main policy functions. Determining tasks and setting objectives are key aspects of governance.
Chapter 3 considers the legal frameworks used by countries to delegate state powers to the central bank and systems of safeguards, or checks and balances, that have been devised to make that delegation both meaningful in practice and acceptable for open societies.
Chapter 4 looks at the design of decision-making arrangements and is motivated by the fact that an increase in the delegation of power to the central bank has often been accompanied by a move to group decision-making.
Chapter 5 considers various ways of constructing working relationships between the central bank, the government and the legislature so that the central bank’s delegated authority is not diverted in the pursuit of effective coordination.
Chapter 6 surveys resource issues of central banks, including those arising from the fact that profit-making is not their primary objective.
Chapter 7 examines how central banks are made accountable for the manner in which they exercise their powers, including via the transparency of their decision making. This chapter is thus the major counterpart to the discussions in Chapters 2 to 6 regarding the powers and resources granted to central banks.
Chapter 8 deals with the management of risk.
Chapter 9 discusses the design of management structures and staffing arrangements.