How central banks communicate It is widely accepted today that independent central banks are best placed to maintain price stability in the economy. The Maastricht Treaty, therefore, has bestowed the ECB with full independence in the pursuit of its mandate. In a democracy, independence must be accompanied by both transparency and accountability to the general public. In other words, it is the duty of independent central banks to be transparent and to communicate not only with specialised audiences, such as financial market participants, but also with the public at large. Transparency is multi-faceted, but basically involves making information available to each interested party that is “relevant” for their understanding of monetary policy decisions. Central banks’ approach to communications has changed radically in recent years. About more than a decade ago, most central bankers believed that “secrecy” about their actions and intentions would be key to successful monetary policy.. Theoretical studies at that time suggested that secrecy and occasional “surprises” would make monetary policy more effective. 1 Advancements in economic and monetary theory seem to have altered this paradigm. Today, most central banks around the world accept the importance of high standards in terms of transparency and greatly emphasise the need for clarity in their communications. To give an example, it is common practice nowadays among central banks – and in particular at the ECB – to inform the public about monetary policy decisions as soon as the decision is taken. The ECB was the first to do so among major central banks in the industrialised world.

And our goal, in the moment of the transition, was to fully respect the promise made to the people of the euro area namely: “The new currency will be at least as credible and as confidence inspiring as was your own national currency.” In this perspective it was very important to explain in real time our decisions to be as clear as possible on our diagnosis and reasoning with a view to convince observers that the new currency deserved fully this very high level of credibility. Secondly we also had to take into account the fact that we were issuing a new currency for eleven countries, eleven cultures and (soon to become twelve and then later on thirteen and fifteen today) and many languages. In this framework it was indispensable to have extremely clear single terms of reference from the very moment of the collegial decision. Otherwise it would have been unavoidable that various interpretations would have been given through the grid of various cultures and different languages. Had we waited for five of six weeks to give detailed explanations we would have been facing information and communication issues that would have been very difficult to solve. Thirdly, as explained before, and totally independently of the previous two reasons which are specific to the euro area, academic research had, particularly in the 90’s, made important advances in permitting to understand better the decisive role of transparency in establishing and consolidating the credibility of central banks and in helping them to solidly anchor inflation expectations.