Central Bank Communications across the globe.
By: Majok T. Deng,
The Bank of South Sudan (BoSS) was established in July 2011 as an independent monetary authority in South Sudan, replacing the Bank of Southern Sudan, which was a branch of the Central Bank of Sudan.
The then President of the Bank of Southern Sudan, the late Elijah Malok Aleng, was appointed as a deputy governor of the Central Bank of Sudan (CBS) in Khartoum after the signing of the Comprehensive Peace Agreement in 2005[1]. He became the first Governor of the Bank of South Sudan in 2011. Hon. Kornelio Koryom Mayik succeeded him as the only BoSS governor to complete a five-year tenure as mandated by the Central Bank Act 2011 as amended in 2023.
The Bank of South Sudan issued South Sudan pound banknotes and coins, managing monetary policy and showcasing economic sovereignty, taking over functions of the Sudanese pound, including medium of exchange, store of value, and unit of account.
The Bank of South Sudan (BOSS) aims for price and monetary stability, liquidity, and a stable financial system. It supports South Sudan’s government’s economic policies and maintains a safe money supply to prevent either inflation or deflation.
The Bank of South Sudan oversees the banking system, serves as a government banker, provides advisory services on monetary and financial policies, and acts as a last resort lender. Traditional monetary policy tools include open market operations, reserve requirements, and central bank rate. Unconventional tools like quantitative easing and forward guidance emerged post-2008 global financial crisis (GFC).
This article discusses the importance of forward guidance as a monetary policy tool in South Sudan. Monetary policy manages the money supply and is used by central bank to regulate macroeconomic variables like inflation, growth, and unemployment. It differs from fiscal policy, which focuses on government spending and taxes. Both fiscal and monetary policies must be well-coordinated to achieve better macroeconomic outcomes. Milton Friedman suggests that monetary policy decisions have a shorter lag time compared to fiscal policy.
Recent decades have demonstrated that effective monetary policy decisions require clear communication to avoid market disruption. Central Banks now recognize the impact of communication on market expectations, as expectations are crucial in price formation by market participants, challenging conventional wisdom in economics.
Forward guidance in monetary policy is divided into two categories: Delphic and Odyssean. Delphic guidance outlines the expected future interest rate path, while Odyssean involves a conditional commitment to the policy stance. The Delphic approach allows policy rates to respond to contingencies without risking the Central Bank’s reputation. However, Delphic guidance may be less effective in influencing inflation expectations and asset prices.
Essentially, Central Banks were traditionally secretive governmental agencies, often surprising market participants with their actions. The Central Banking Community believed that the efficacy of monetary policy depended on this ability, like how a military war would involve surprise attacks to win a war.
In fact, Former Bank of England Governor Montagu Norman emphasized that his monetary policy was never explained or excused, showcasing the monetary communication of our forefathers. In the 1990s, the focus on Central Bank communication changed as countries transitioned from monetary targeting to inflation targeting frameworks. This shift led to increased attention to monetary policy communication, which is now a fundamental feature of these regimes.
Communication aims to explain monetary policy goals, strategies, expected economic conditions, and limitations. Central banks targeting inflation become more transparent than those targeting monetary aggregates or exchange rates, and countries with higher monetary policy transparency tend to experience lower inflation.
Governor Norman would be surprised by the increased communication of central bankers to the public, as monetary policy communication has become a powerful tool for steering market expectations and improving predictability.
In a sharp contrast, Dr. Ben Bernanke, former Federal Reserve Chairman, once said that monetary policy is 98% talk and only 2% actions. Focusing on other monetary policy instruments like policy rates and open market operations would be erratic, as communication is an alternative policy tool.
Central Bank communications have become more crucial for monetary policy due to increased transparency, active engagement with government, public, and markets, operational independence, and public accountability, which helps maintain policy decisions from short-term political pressures[2]. Central bank communication should focus on addressing the public and stakeholders, emphasizing diversity in their roles and addressing the specifics of what the bank should communicate.
The BoSS should communicate monetary policy principles with stakeholders, ensuring clear, candid, and transparent information. This should reach all segments of the population, take place regularly, and be available without segregation. Furthermore, Central bank officials should communicate decisions with unity as an institution, tailoring the information to those stakeholders. This ensures that the same information is available to all economic agents without segregation.
Central Bank communication channels include press releases, press conferences, websites, social media, interviews, op-ed pieces, meetings, background briefings, public speeches, and newsletters. Tools include monetary policy statements, press conferences, reports, websites, and social media.
Majok T. Deng is an Economist in the Office of the Governor, and he is reachable via majokthon2014@gmail.com. Disclaimer: The views expressed in this article are his own. These views do not reflect either those of the Central Bank management or its Board of Directors.
[1] “Bank of Southern Sudan” (PDF). Archived from the original (PDF) on 2012-03-02. Retrieved 2024.
[2] Levin, Andrew T., (2014), “The Design and Communication of Systematic Monetary Policy Strategies.”
Journal of Economic Dynamics and Control, Vol. 49, pp. 52–69