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James Quinn: Bank of England has missed its chance for greater transparency

Section: Daily Dispatches

By James Quinn
The Telegraph, London
Thursday, December 11, 2014

http://www.telegraph.co.uk/finance/economics/11289020/The-Bank-of-Englan...

When Gordon Brown gave the Bank of England independence from political control just four days after Labour swept to power in May 1997, it was with a fanfare.

The surprise announcement -- it had not been a policy or the subject of debate in the run-up to or during the General Election ii was described at the time as the "most radical shake-up" in the bank's 300-odd year history.

"I want to set in place a long-term framework for economic prosperity," boomed the then-chancellor. "I want to break from the boom-bust economics of previous years."

... Dispatch continues below ...



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Brown's policy -- which Tony Blair claimed 13 years later in his memoirs was his own idea all along -- set the Bank on a new path. Having long been the enabling arm of HM Treasury, here was the opportunity to really set the Old Lady of Threadneedle Street free.

Brown viewed the independent bank as being in line with his own monetarist principles. With the Bank given independence to set interest rates, the Treasury could not be accused of interfering with the market.

For centuries it had been the responsibility of one man -- the chancellor of the Exchequer -- to decide what the interest rate should be in order to best manage the economy.

In establishing the Monetary Policy Committee, Brown gave it two main aims. One was to formulate the UK's monetary policy, via the setting of the bank's base rate, linked to a target inflation rate of 2 percent. Secondly, he charged the committee with supporting the government's economic policies, in particular for employment and growth.

But by passing responsibility to set rates from his own office to that of the MPC, Brown simply passed power from one opaque decision maker to another.

Yes, the MPC is made up of nine members rather than one, but its role is still as judge and jury, hearing the evidence put by the Bank’s economists, and then deciding on the best path. For the 17 years of its existence it has made those decisions entirely in private. Although its monthly meetings last two days, all that central bank watchers are given at the end is a drab statement indicating the new rate, and a bland note on the health of the economy.

Abridged minutes -- which essentially list key economic data discussed by the committee, and the proportion of members who voted in which direction -- are then released a fortnight later, but the actual, full transcripts are then shredded and burned. This practice was deemed acceptable by Brown and then Governor Sir Eddie George from the MPC's inception.

But although Mark Carney, the current governor, swept in to Threadneedle Street on a mandate of openness and change -- he allows bank staff to call him "Mark" rather than "Mr. Governor," for example -- there is little evidence of change 18 months on.

Thursday's publication and adoption of the Warsh review into transparency will change little. The date of publication of the minutes will be brought forward to coincide with the announcement of the interest rate decision, but they will not be transcripts. They will be be published only eight years later, some three years behind the five-year rule employed by the US Federal Reserve, with the bank citing the UK's six-to-eight-year business cycle as the prime reason behind the chosen delay. The European Central Bank, that bastion of openness, doesn't publish its transcripts for 30 years, the bank's spinner pointed out, as if that made everything all right.

Even when these transcripts are published, they will not be in full. Instead they will be partial versions -- missing out day one of the meetings when all the main discussion is said to take place -- with publication due to start in 2023, some nine years from now. The argument for holding back on some of the transcripts is because, bank sources hint, MPC members want to be able to speak freely without fear of being held to something they'd said in jest eight years later.

Of course it means that members can continue to espouse their own opinions in public without the public knowing that they might have contradicted what they expressed behind closed doors.

The other changes -- reducing the number of MPC meetings and combining the MPC with the Financial Policy Committee during the year -- are little more than window dressing, and something Carney is understood to have wanted because the Bank of Canada, where he reigned prior to his appointment at the Bank of England, had just eight meetings a year.

Kevin Warsh, a former Fed governor, spent six months working on these recommendations. He wasn't paid for his work but was paid out-of-pocket expenses. On Thursday the Bank could not say how much those or the costs of implementing the changes would be. So much for transparency.

In reality, the discussions surrounding how interest rates are set will continue to be chosen by a closed shop.

The Warsh review -- in part the product of continued demands for more information from Andrew Tyrie's Treasury Select Committee -- had the potential to sweep away the cobwebs from the MPC and shine some light on a key financial process. But, unfortunately, in the bank's 320th year, it appears to have been little more than a missed opportunity.

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