Transparency is a key element in the accountability processes of independent central banks. Because they have been given greater independence, transparency of these institutions is seen as a mechanism which provides society with the ability to assess if the actions taken by central banks are consistent with their constitutional mandate. Additionally, greater transparency in the formulation and implementation of monetary policy strengthens the credibility of a central bank, improves the efficiency of its policies, and contributes to better market operations.
In different countries including Colombia, the institutional and legal framework sets various elements that allow the actions of their national central banks to represent the interests of society directly or indirectly without compromising their independence. The most important of them is the delegation of accountability to Congress, the body that represents the interests of all citizens and to whom central banks present annual or semi-annual management reports. Additionally, to ensure that the central banks act within the limits of their legal mandates, certain instances (such as the legal control of the regulation issued and disciplinary control over the behavior of its officials) exert control over the actions of a central bank.
Banco de la República, the Central Bank of Colombia, has technical, administrative, and budgetary independence granted by the Constitution of 1991. In accordance with the principles of accountability, it makes enormous efforts to be transparent and to communicate the strategies, policy decisions, and other relevant issues of its mandate in a clear, effective, and timely manner. These efforts take place in all aspects of the Bank's operation, ranging from those related to monetary policy to those involving cultural activities, the administration of international reserves, the production of banknotes and coins, the procedures for liquidity access (including emergency liquidity supply); the Bank’s duties as the government’s fiscal agent, and its role as promoter of the smooth operation of payment systems in the country.
Transparency mechanisms related to the design and execution of the monetary, exchange, and credit policy—one of the main roles of the Central Bank—schematically include the actions described below:
Every month, the Board of Directors of the Central Bank analyzes the following groups of information within the framework of the latest Inflation Report:
Specifically, the Inflation Reports have the following objectives: (i) to communicate to the public the vision of the Office of the Deputy Technical Governor of the Bank regarding recent developments of inflation and inflation expectations and the short-to-medium term drivers; (ii) to explain the implications of these factors for the management of monetary policy within the inflation target strategy; (iii) to explain the context and the analyses which underpinned monetary policy decisions during the quarter; and (iv) to provide information that contributes to the formation of expectations by economic agents about the future path of inflation and output growth. In the Inflation Report, the Bank's technical staff analyzes the economy and the inflationary situation and its prospects in the medium and long term based on which it provides recommendations to the Board of Directors on the monetary policy stance.
The Governor delivers a presentation of the Inflation Report, with free entry, where he highlights the most important sections of the report. The event is broadcast live on the institutional channel (channel 9 on national television) and through the Bank’s virtual channel. As with the videos of the press conferences, the most recent videos of this presentation are available on our Website.
According to Article 5 of Law 31 of 1992, the Board of Directors of Banco de la República presents a report to the Congress of the Republic twice a year, presenting the behavior of the economy and its prospects. This report is submitted within 10 working days from the beginning date of the sessions of Congress (in March and July).
The Reports of the Board of Directors to the Congress of the Republic include an assessment of the macroeconomic outcomes observed, including careful analyses of the various shocks to the economy. The reasons why there might have been a deviation from the inflation target, if it is the case, are explained in the Report. Also, a vision as to where the Bank considers that the economy is directed in the near future is presented. In addition, these reports contain an explanation of the rationale behind the monetary, exchange rate, and credit policy decisions made by the Board of Directors. It also describes the level of the country’s foreign reserves and the financial situation of the Central Bank.
The topics covered in the Report are:
In other words, the public as well as local and international markets are provided with all the relevant information about the monetary policy decision-making process (the "inflation targeting strategy"), the assessment and the rationale behind policy decisions, as well as the procedures followed. In addition, all efforts are made for this information to be understandable and timely. Thus, the Bank complements its constitutional and legal obligation to submit to the Congress of the Republic, twice a year, a report on its management as a counterpart to its independence, and with the purpose of guiding the public’s expectations regarding the management of monetary policy, which contributes to its efficiency and reduces unnecessary volatility in the markets.
As for the transparency and accountability of Banco de la República related to its other functions, the following information is relevant: The Reports of the Board of Directors to the Congress of the Republic always contain two chapters, one reporting on the administration of the country's foreign reserves, and another one on the financial situation of the Bank. The chapter on the management of the reserves explains the criteria for the administration and reports on the results obtained, providing detailed information on the Bank’s revenue and expenses. Also, the Bank’s balance sheet, duly audited, is presented in the final chapter. All this information is available to Congress and society in general, and the members of Congress can comment and make detailed questions on any subject of the Report.
On the other hand, the Bank periodically publishes the Payment Systems Report and the Financial Stability Report. The former provides a detailed analysis of the performance of the payment systems and the actions taken by Banco de la República regarding that matter. On the other hand, the Financial Stability Reports identify the risks of the country’s financial system associated with macroeconomic factors or to the behavior of the customers of the system (families, businesses, and government).