Blinded by the light

Cult of central bank transparency is too powerful

Central bankers are in a bind. The zeitgeist demands that such unelected and powerful policymakers share every twist and turn of their deliberations. But while some transparency is good, more is not always better.

Take the powerful US Federal Reserve. Kevin Warsh, one of its former governors, told a conference on May 21 that, in its meetings, policymakers deliver prepared remarks, for the minutes, and then look at smartphones while other colleagues read from their notes. Serious conversation is reserved for coffee breaks. San Francisco Fed President John Williams reckons the quality of policy debates suffers from the requirement for detailed minutes, which investors and journalists will dissect, word by word.

Even these comments to a conference will be carefully recorded - they were uttered by present and past central bankers, after all. And the trend towards greater transparency remains inexorable. The European Central Bank began publishing accounts of its policy meetings earlier this year. Meanwhile, the Bank of England, which has long done this, will from August publish minutes alongside its decisions rather than waiting nearly two weeks.

Of course, central banks can choose to make these narratives so anodyne that they give almost nothing away. The most avid ECB-watchers found little to get excited about in the central bank's debut minutes. But it is always hard to be bland when rates have to move. Then, every view and vote is pored over. Every detail of a dissenting argument is parsed.

This can lead to a reticence, which has unintended adverse consequences. Charles Plosser, who stepped down as head of the Philadelphia Fed in March, says US rate-setters were so focused on achieving a consensus that post-meeting statements were vacuous, vague and hard to interpret. Self-censorship might also stifle worthwhile debate. Policymakers refrain from challenging peers, playing devil's advocate, or discussing heretical theories if they know their robust debate will shortly be put under a public microscope.

Central bankers are rightly held to account, ultimately by elected officials. But a totemic ideal of transparency is just self-defeating.