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Communication with the public: transparency
When monetary policy is separated from other policies and armed with its complete independence, even from political authority, transparency becomes absent from its performance and its fate is unknown, while its priorities are the ones that uniquely drive policies financial and economic and dominate them. Therefore, it is not desirable for monetary policy to have a wide margin of independence without carrying out a minimum of scientific performance based on research and planning. Generally, the directions of monetary policies are clear with their objectives, understood by the public and convincing for financial markets and economic sectors. This is the path followed by central banks around the world: setting objectives, defining tools and implementation mechanisms. In Lebanon, the story is different, because the Banque du Liban tends to dominate monetary policies over other policies within the framework of multiple objectives that are not limited to economic matters, but may also include political matters.
Since the mid-1990s, the idea of central banks communicating with the general population began to spread. The motivation behind this idea is related to the tendency of central banks to maintain transparency in their work so that it is clear and understood by the political authority and the markets. Transparency is closely related to preserving the independence of the central bank. This trend began to be followed by political regimes from the eighties because the monetary authority is not elected, but appointed by the political authority that establishes broad goals for the central bank based on its vision of rates. unemployment and inflation in the economy.
On the other hand, these systems sought to ensure that the monetary authority is transparent in its work and elections, thus assuming responsibility for its actions in cases of success or failure.
Effectiveness: objectives and strategy
In addition to transparency, the central bank sets other objectives in its dealings with financial markets. He wants to have an increase in the effectiveness of monetary policies, and this matter does not happen by informing people of the decisions they make, but also by explaining them and clarifying what is intended.
In this context, economic researcher Marvin Goodfried points out the following: “By making itself more predictable for markets, the central bank wants to ensure that market reactions to monetary policy are more predictable. This leads the bank to do a better job commensurate with its role in managing the economy. “At a time when the purpose of conducting monetary policies is lost by surprise, the reactions of economic behavior to shocks Economic policies can be coordinated with the trajectory that the central bank deems appropriate, controlling market expectations about the desired objectives of these policies.
In this sense, it can be said that the bank’s greater communication with the market reduces the divisions around the signals that its actions carry, which makes market behavior in line with the objectives of its monetary policies.
Communication can be in the form of disclosure by the central bank of its objectives and strategy, which helps to help determine the steady state of the economy, which is the state to which it automatically tends after the effects of economic shocks. disappear. Regarding the announcement of the strategy, it seeks to clarify the way in which monetary policies operate outside of stable market situations, and defines how these policies respond to shocks to facilitate the transition of the economy to a stable state. In this way, communication speeds up and makes the economic adjustment process less painful, especially when the principles underlying the bank’s strategy are clear.
Marvin Goodfried: The central bank wants to make sure that market reactions to monetary policy are more responsive to its predictions.
There is growing evidence in research to support the idea that transparent quantitative targeting and strategy communication improves the effectiveness of monetary policy, especially when it comes to quantitative targeting such as determining the rate of inflation. For example, research by Andrew Levin and others (published in 2004) and another by David Johnson (published in 2002) confirm that, as a result of determining price stability and declaring the required inflation rate, expectations about them in the market decline to be consistent. With what the central bank aspires.
The Lebanese track is unknown
In Lebanon, there is no clear path in which direction monetary policies will take. The Banque du Liban does not make any public contact with the markets, except in person and meetings with the conglomerates that it uses as tools to achieve its policies, such as the Association of Banks. Most of these meetings take place in a non-public setting and no official information is issued on them, but rather focus on the mechanisms and channels for the exchange of interests and benefits between the Banque du Liban and the rest of the parties. Therefore, the matter does not have to do with the elaboration and defense of policies against those who have power in the system, and the matter is not limited to circulars issued by the monetary authority, which must be based on policies and clear guidelines. The behavior of the Central Bank of Lebanon in the crisis is one of the most prominent signs of this matter. Today you leave the comments on your monetary policies to your visitors. The last of these was the newly formed depositors association that visited him and quoted him as saying that there is 10 billion dollars stored in households, “which requires establishing a new regulatory mechanism to restore confidence in banks, including the preparation of a Lebanese digital currency project, during the year 2021, to help implement the CASHLESS SYSTEM, which allows the money market to move. Locally and abroad. ‘ So are these security approaches to bankruptcy management?
There is growing research evidence to support the idea that transparency in setting quantitative targets and communicating strategies improves the effectiveness of monetary policy.
As for the circulars issued by the Banque du Liban, most of them are unclear and need to be “decoded” to understand what lies between their lines. Other than that, there is no mechanism for communicating with the public and even with the political authorities (with the exception of some calls to the House of Representatives, which did nothing more than push him to justify what he is doing instead of being accountable). It does not issue annual announcements about its goals in terms of achieving certain rates of inflation and job creation, nor does it explain its strategies for reaching these goals. And even he does not issue an explanation of the circulars to indicate what he is trying to reach through them, nor does he provide an assessment of the economic situation of the country. “We will maintain stability” … All these phrases that we have heard in recent years require a return to the responsibility exercised by the political authority that appointed the monetary authority and allowed this amount of independence without accountability.
Firms
US Federal Reserve: price stability
On August 27, the US Federal Reserve issued a statement outlining its goals and what has been accomplished over the past period. “The FOMC is firmly committed to fulfilling its legal mandate from Congress to promote maximum employment, stable prices and moderate long-term interest rates. The committee reiterates its opinion that inflation of 2%, measured by the annual variation of the price index of personal consumption expenses, is the most consistent, in the long term, with the legal mandate of the Federal Reserve. The committee believes that the long-term inflation forecast, which is set at 2%, improves price stability, adjusts long-term interest rates, and facilitates the committee’s ability to improve the maximum number of job opportunities in the face of a great economic upheaval.
Central European: full employment
The European Central Bank reveals its policies in the eurozone, and these are some of them: “Maintaining price stability is the main objective of the euro system and the unified monetary policy for which this system is responsible. This is stipulated in article 127 of the Treaty of Action of the European Union. Without prejudice to the objective of price stability, the euro system must also support the general economic policies of the Union to help achieve its objectives. These goals include, among other things, full employment and balanced economic growth. The treaty establishes a clear hierarchy of objectives for the European system. It gives the highest importance to price stability. The treaty also clarifies that ensuring price stability is the most important contribution that monetary policy can make to achieving a favorable economic environment and high employment.
The Bank of England: these are the objectives and the tools
“The objective of our monetary policy is to maintain price stability in the UK. With this in mind, we support the government’s economic policy, including its growth and employment goals. We have implemented monetary policy to meet the government’s goal of keeping inflation at 2%. The Monetary Policy Committee (MPC) decides what policies should be applied to achieve this objective. To maintain monetary stability, we must influence monetary conditions. This includes, for example, the price level of goods and services and the availability of credit. Currently, the MPC is doing this in two main ways. First, it sets interest rates for banks (and takes steps to ensure that these rates pass through to households and businesses). Second, it uses asset buying, also known as quantitative easing. “
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