The late New York intellectual Irving Kristol is reported to have said: “Don’t fall for fantastical notions that have nothing to do with the way people really are.”4 My experience of having worked in real time in the financial markets leads me to a different perspective on financial operators and markets than that of most of my colleagues  1  See www.number10.gov.uk/history-and-tour/prime-ministers-in-history/margaret-thatcher. 2  See “Were 364 Economists All Wrong?” Institute of Economic Affairs, www.iea.org.uk/sites/default/files/publications/files/upldbook310pdf.pdf. 3  See “Were 364 Economists All Wrong?” BBC Newsnight report by Stephanie Flanders, http://news.bbc.co.uk/2/hi/programmes/newsnight/4803858.stm. 4  See “Three Cheers for Irving,” by David Brooks, New York Times, Sept. 22, 2009. BIS central bankers’ speeches  1  at the Federal Open Market Committee (FOMC). This not only affects my views on the implementation of monetary policy, but also shapes my perspective on regulation. Monetary policy and regulation are intricately linked. When conducting its monetary policy, the Fed is governed by a dual mandate: creating the monetary conditions to foster maximum employment growth while constraining inflation and its alter ego, deflation. These goals cannot be realized without financial stability that results from effective regulation. As the FOMC now sets its sights on concluding the accommodative monetary policy it fashioned to stave off financial collapse and deflation, our supervision and regulation team is wrestling with developing the appropriate policy for dealing with the lingering effects of the financial crisis, and, most importantly, erecting a new regulatory framework to substantially reduce the chances of financial crises.

This is to say central banks should always have room to act, especially in response to an unforeseen emergency situation. So, given the benefits that central banks can gain from greater transparency and the rationale for having some limits, the challenge is to find the right balance in disclosure policy that maximizes the economic benefits of transparency while, at the same time, limits the unnecessary risks and provides flexibility to act when needed. The second issue I want to speak on today is the challenge to central banks in designing disclosure policies. On this issue, I want to begin by saying there is no absolute level of appropriate transparency. This is to say appropriate level of transparency to a central bank is not firm or fixed but always changing, depending on the circumstances which include the capacities of the central bank to provide information, the demand for information from financial markets and stakeholders, and how much  BIS Review 10/2006  1  credibility does the central bank has. Such are the forces that eventually shape the extent to which the central bank should be transparent in the eyes of the public. Another point about disclosure policy is that disclosure policy cannot be separated from the central bank’s own communication policy. This is because data release by itself is mostly not sufficient. The central bank will need to communicate what those data mean and, on the basis of those data, what is the rationale for the central bank to pursue certain policies.