Africa's Central Banks Have To Do Better
Economist Steve Hanke and Michael Morgenstern have written a seminal, fluid and devastating article, "What's wrong with central bank websites?", which details an aspect of the crisis that exists in the world of central bank transparency. Performing arduous research, Hanke and Morgenstern sought to determine whom in the community of central banks passed elementary tests of transparency. Sadly, and in plentiful supply, at the top of the list of countries whose central banks don't provide basic information, or which do not even have websites, are the nations of Africa.
Of course this problem is not confined solely to Africa but quite honestly, we aren't as concerned with the others.
We are especially concerned about monetary policy in Africa because it is that element of government policy that quite frankly, not a single African nation appropriately addressed after independence.
In a rush to rid themselves of the presence of the European colonialists, African nation after African nation relegated monetary policy to the backburner of relative insignificance. Instead, while under the influence of some very bad interpretations of Marxism and seeking to address the suffering and needs of their impoverished populations, every country coming out of independence developed enormous domestic and foreign debts with central banks attempting to address budget shortfalls by printing and loaning money to the government.
Today, the continent is ravaged from the effects of ineffective monetary policies and the hyperinflation that accompanied them.
In this space we have advocated a variety of monetary policy options that we believe could have a positive impact on economic development and economic growth throughout the continent. We will continue to do so.
But we would be remiss if we did not speak to the reality that many countries on the continent of 700 million, simply have not given proper attention to the basics of sound monetary policy and the need for transparency, not just for the benefit of foreign investors or the IMF or Bank for International Settlements but for the benefit of the domestic economy and the need for every society to have a reliable unit of account by which that society can measure its units of labor - irrespective of the profession, trade or industry.
Interestingly, it is often these same African nations who do not have websites that are most vocal about their need for foreign investment and aid. They simply cannot have it both ways. In order to obtain the investment they desire, they will have to provide accurate, dynamic and timely information regarding the activities and operating mechanism of their central banks.
And they should not stop there. They should provide the same information to the citizens of their country.
This is why we have so strongly advocated the use of currency boards in Africa, which mandate that every day, the central bank display its balance sheet to the public. Such a provision increases trust and confidence in the government and economy.
There is no reason why central bank transparency and the implementation of sound monetary policies should not go hand in hand.
Certainly, because so many Africans are without access to the Internet, the call for the maintenance and updating of central bank websites is largely for the benefit of the international community. But, we see nothing wrong with that, considering that every nation relies on international trade in order to satisfy the needs and wants of its citizenry.
It does not cost much at all to design and maintain a website, so the question boils down to whether or not monetary authorities want the accountability and even scrutiny that accompanies full disclosure of central banking activities. Sadly, the answer in many countries is no. The central banks and finance ministries view monetary policy as an exclusive undertaking to be carried out in seclusion and secrecy.
And to be honest, even central banks with beautiful websites that meet international standards for transparency are still run in a way that makes decision-making and policy formulation off limits to the public.
We can rest our case with the activities of the United States' Federal Reserve Open Market Committee.
Having said that, Africa can set a wonderful example for the entire world, including the US, to follow, if its central banks would supply regular, reliable and accurate information on websites and in documents available to the public.
And they can do so at a financial cost that is miniscule - certainly when compared to the price whole nations have paid for monetary policy mismanagement.
Professor Hanke and Mr. Morgenstern's article is available at:
Wednesday, March 14, 2001