In November 2017, the Bank of England started releasing a visual summary of its inflation report. In May 2018. Adrian Orr, the new governor of the Reserve Bank of New Zealand (RBNZ) explained his first monetary policy via a series of pictures and cartoons. Orr told the reporters: “I think our challenge is to speak in plain English as opposed to in a high-tech scientific language which only about half a dozen people understand and even less are interested in." Later, The Irish Times (19 July 2018) reported that the Central Bank of Ireland was looking to hire cartoonists in order to simplify its policies.
Why does this matter? For a very long time, central bankers chose to remain opaque. Sir Stephen Harvey, deputy governor of the Bank of England (1930) remarked “it is a dangerous thing to start to give reasons." The New York Fed president George Harrison (1928-40) believed that declining public speaking helped him think more independently and his successor Alan Sproul (1941-56) referred to central bankers as “members of silent service". David Kynaston notes that the common opinion shared by central bankers in 1960s was that “central bankers should always do what they say and never say what they do". Later, Alan Greenspan, former chief of the Federal Reserve, famously said, “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant".
This tradition began to change with the advent of inflation targeting in 1990s. Central bankers started to explain their decisions with more clarity and conciseness. There were more press releases, media interactions, and regular speeches, though the mode was largely descriptive and text-based and was largely directed towards the financial media and economists. The impact of such communications on financial markets was largely seen as positive.
What we are seeing now is this usage of visual tools to enhance communications. The reason behind the new focus is this dilemma central banks are facing. On the one hand, public trust in them has declined, while on the other, more responsibilities have been delegated to them after the financial crisis. This has prompted central bankers to explain their policies to the public. Clearly, visual tools are best suited as a “picture is worth a thousand words". This visual appeal will hopefully help the public understand the challenges faced by central banking, leading to appreciation and building trust.
The initial research by the Bank of England and the UK’s Behavioural Insights Team recently showed that the visual summary has helped the public comprehend the bank’s policy in a “statistically significant way" compared to the usual text-based summary.
Some of the central banks have gone further and started their own blogs: England, Norway, Finland, Argentina, regional Feds such as New York, Atlanta and St. Louis. Canada is the latest entrant with its launch of ‘The Economy, Plain and Simple’, a website that will “help Canadians better understand the economy". The list continues to expand. With a blog, the central banks signal that they are interested in building a dialogue with the public and it helps disseminate their research findings in an informal manner. Most of the above pointed modes of communications are either a monologue (press releases, speeches ) or a dialogue for a brief time (media interactions). A blog is a welcome change to break this monotony.
The Reserve Bank of India (RBI) has followed a policy of gradualism in most of its policies and the same is the case with communication. It started with releasing its monetary policy statement in the late 1990s, followed by media discussions in the early 2000s. The real thrust to simplify and improve communications came during the tenure of former governor D. Subbarao (2008-13). His tenure started on the eve of the global financial crisis, which could have prompted this change. The monetary policy statement was shortened significantly, RBI top management engaged with researchers via a teleconference to discuss monetary policy, and started a working paper series .
One would have imagined the advent of inflation targeting in India would usher more transparency and clarity in communications, but unfortunately that has not been the case. The monetary policy committee statements and minutes are very formal and require a significant knowledge of economics to decode the policy. Interestingly, the RBI used pictures/cartoons to spread financial literacy in the Money Kumar series. That experience should be utilized to explain monetary and banking policies as well.
This visual approach will be immensely useful in its Statement on Developmental and Regulatory Policies (SDRP) which is released along with the monetary policy statement. By adding graphs and cartoons, RBI can help people understand what the new regulations (developments) are trying to achieve which were missing or inadequate in the previous regulation and so on. The recent SDRP statement mentioned the Voluntary Retention Route (VRR) for investment by foreign portfolio investors, whose explanation was a challenge even for the best of experts.
To fill the blogging space, RBI started Mint Street Memos in August 2017, but they are more like short working papers. One cannot comment on memos, the writing is complex, and the number of memos is too occasional. Therefore, either the format of memos needs to be changed or RBI could experiment with a new blog.
In his post-Nobel Prize talk, Paul Romer remarked that “economics is valuable only if it is communicated to other people" and “we all should be pushing for communicating clearly". One could not agree more. RBI can clearly help us all by applying the lessons from other central banks and Romer in its communications policy.
Amol Agrawal teaches at Ahmedabad University .