associated risk accurately. by reducing guesswork and uncertainty, transparency helps to smooth price adjustments and eliminate some of the shocks that can result when market participants discover they have “ priced in ” assumptions that are inaccurate. in my view, the current move toward greater market transparency is reflected in four broad categories : policy, information, pricing, and risk management. the increased transparency of central bank policy - - which is a product of deliberate steps taken by policymakers - - is an important aspect of the move toward more transparent overall market conditions that we ’ ve been observing. over the past several years, central banks in a number of countries, most notably in canada, new zealand, australia, and the united kingdom, have become increasingly convinced of the value of making a public commitment to an articulated and transparent policy standard, usually price stability. by setting clear policy objectives, the makers of monetary policy can eliminate much of the guesswork that central bank watchers must engage in to figure out what the central bank will do next. in so doing, they can help anchor inflation expectations over the long term, and thereby foster economic growth by ensuring a stable price environment. many central banks are also increasingly coming to realize that much of the secrecy and cautious signaling that once characterized monetary policy decisions is, to some extent, counterproductive. in recent years, a number of central banks have taken measures to further open up their policy processes to the public. for example, prior to february 1994, changes in monetary policy in the united states were signaled to the market through open market operations. since that time, the federal reserve has publicly announced changes in policy, typically following each meeting of the federal open market committee, or fomc. some policymakers had been concerned that this shift in procedure for communicating policy decisions might create additional market volatility. in fact, a recent study by some of my colleagues at the federal reserve bank of st. louis found just the opposite - - that announcing policy changes has not led to increased volatility in the federal funds rate. by making information on monetary policy decisions available quickly and broadly, we at the federal reserve have helped level the playing field and, i believe, contributed to smoothing the process by which new information on fomc policy is incorporated more quickly and efficiently in asset prices. other central banks have similarly increased transparency in their monetary policy processes. one example is the bank of england ’ s move to publish the minutes of the monthly policy meetings between the chancellor and the bank of england governor

, they have contributed importantly to improved transparency in financial markets. the federal reserve bank of new york has also been deeply involved in efforts to reduce foreign exchange settlement risk - - efforts that should further serve to improve market efficiency and overall financial stability. in october 1994, the new york fed - sponsored foreign exchange committee issued a major report on “ reducing foreign exchange settlement risk. ” the bank has also been working actively in this area with other central banks through the g - 10 central bank committee on payment and settlement systems, or cpss, which i have had the pleasure to chair in recent years. building upon the work of the new york foreign exchange committee, the cpss published a document in march of last year, often referred to as the allsopp report, that contains a comprehensive strategy outlining how the public and private sectors can work together to reduce foreign exchange settlement risk. the strategy was endorsed by the g - 10 central bank governors and calls for specific action on the part of individual banks and industry groups. a survey conducted by the cpss last autumn indicates that individual banks are answering the g - 10 governors ’ call for action. many banks have made a good start in improving their ability to measure, manage, control, and net their bilateral settlement exposures, and they plan to push these efforts even further over the next year. while this is a very encouraging beginning, we can ’ t ignore the fact that more work must be done by individual banks. with this in mind, the cpss will continue to closely monitor progress over the next year for any signs of slippage. the search by individual banks for efficient ways to reduce their foreign exchange settlement risk has brought about important progress at the industry - group level as well. the allsopp report noted the efforts of fxnet, s. w. i. f. t, echo, multinet, and the group of 20 banks to offer various types of risk - reducing services, and these ongoing efforts are very encouraging. some banks are also exploring the elimination of settlement risk altogether by shifting the market to trades that simply settle the gain or loss associated with exchange rate movements - - called “ contracts for difference ” - - instead of requiring delivery of the underlying currencies. we are well aware that many market participants are currently debating what constitutes the most efficient multi - currency netting and settlement services. while there will be potential winners and losers, i believe that the market as a whole should ultimately benefit from this rigorous competition. at the same time