INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN MONETARY POLICY MAKING

1
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKING

• THE CASE OF BANQUE DE FRANCE
• Bernard ENFRUN, Deputy Director General,
  Economics and International, Banque de France

2
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• Why the Central Bank independence has appeared
  imperative in France in 1993 a large public and
  political support
• Which kind of independence ? Scope and limits
• How independence, transparency and accountability
  have been implemented in practice ? Before and
  after 1999
• Conclusion the results of 12 years of BdF
  independence an assessment.

3
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• Why the Central Bank independence has appeared
  imperative in France in 1993 a large public and
  political support
• The need for a low inflation rate and low long
  term interest rates competitive desinflation
  and participation in the EMS,
• The theory as well as the practical experience
  led to the conclusion that the Central Bank
  independence was a necessary condition,
• The idea of Central Bank independence received a
  large public and political support.

4
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• The need for a low inflation rate and low long
  term interest rates competitive desinflation
  and participation in the EMS
• growing awareness of the necessity of a low
  inflation rate in an open world far from being
  against employment, it is the condition for
  competitiveness and job creation,
• EMS participation reinforced the need for low
  inflation rate,
• growing awareness of the need of a credible
  monetary policy in order to have low long term
  interest rate (more than half of the financing in
  France was specified at long term).

5
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• The theory as well as the practical experience
  led to the conclusion that central bank
  independence was a necessary condition
• theory independence, a necessary condition for
  monetary policy credibility and efficiency,
• practical experience despite a long practice
  to work together, Ministry and Central Bank
  failed to earn a sufficient credibility without
  independence,
• conclusion common agreement for Central Bank
  independence.

6
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• The idea of Central Bank independence received a
  large public and political support
• public opinion strong preference for price
  stability,
• the law of August 1993, giving independence to
  the BdF, voted by a large majority of M.Ps.

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INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• Which kind of independence ? Scope and limits.
• Independence strictly defined by the law
  limited to monetary policy, with an objective
  defined by the law and approved by M.Ps
• Independence implies transparency and
  accountability.

8
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• How independence, transparency and accountability
  have been implemented in practice ? Before and
  after 1999.
• Independence in practice
• complete independence in interest rate fixing,
• the exchange rate issue (before 1999) was more
  complex complete independence in the day to day
  management of exchange rate,
• independence backed in practice by several
  measures prohibition from taking instructions,
  fixed mandates, collegiality, prohibition of the
  monetary financing of public deficit.

9
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• How independence, transparency and accountability
  have been implemented in practice ? Before and
  after 1999.
• Transparency in practice
• the mechanisms establishing transparency in
  practice (annual report, press conference,
  publications, communication)
• a new context after 1999 the SEBC
• some controversial issues publication of
  minutes, publication of forecasts.

10
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• How independence, transparency and accountability
  have been implemented in practice ? Before and
  after 1999.
• Accountability in practice
• to the Government,
• to the Parliament,
• to the general public.

11
INDEPENDENCE, TRANSPARENCY AND ACCOUNTABILITY IN
MONETARY POLICY MAKINGTHE CASE OF BANQUE DE
FRANCE

• Conclusion the result of 12 years of BdF
  independence an assessment.
• position and credibility of the Central Bank
  reinforced,
• this has certainly helped to stabilize inflation
  at a low level, to maintain long term interest
  rates low, and by these means to reduce the
  public debt burden and to improve the
  competitiveness of the French economy.