Central bank communication has come under scrutiny in the last few decades. The coronavirus crisis is likely to sharpen this, as high levels of economic uncertainty tend to result in reduced trust and confidence in policy-making institutions.
The Banque de France recently released a working paper to test this hypothesis, looking at public levels of trust, satisfaction and confidence in the European Central Bank, the Bank of England and the Bank of Japan. By looking at data from 1999-2014, it found a correlation between uncertainty over economic policy and a deterioration in citizens’ opinion of, and trust in, central banks. A global OMFIF survey in January showed marked differences in trust levels in central banks worldwide.
Since communication is an important tool in building public trust, central banks need clear and effective language to explain their actions and inspire confidence. Central banks are more transparent than they used to be, communicating with the public through monetary policy statements, press conferences and regular speeches by members of policy-making boards. Despite the increase in communication, public engagement is weak due to the technical language used by central bankers.
In a 2018 study with the UK’s behavioural insights team, the Bank of England found that effective communication can influence trust. The results showed that communicating using simplified and relatable information enhanced public comprehension of the inflation report (now called the monetary policy report) and increased trust in the bank.
Central banks are attempting to be creative in their communications strategies. The Reserve Bank of New Zealand has used cartoons to explain monetary policy decisions, a tool that the Central Bank of Ireland has also adopted. The Bank of Jamaica released reggae-inspired music videos on inflation and monetary policy. Many central banks are active on social media, as detailed in OMFIF’s central bank communications report.
Even before its behavioural study, the BoE had launched ‘vision 2020’ in 2017 as part of its commitment to enhance how it communicates and speaks to what the public wants to hear from the central bank. It recognised the need to communicate its policies credibly to align public expectations with the bank’s objectives. It focused on achieving this through explanation, engagement and education.
Explanation ensures that the public forms their expectations based on information that is easily comprehensible but accurately represents monetary policy objectives. The BoE introduced layered communication techniques to speak to different audiences.
The first layer is the simplest: an announcement of a monetary policy decision in an abbreviated form that can be published on social media. The second layer is a visual summary written in simple English and accompanied by images and icons, making the information easier to understand. The third layer is the full report, targeted towards economists and finance professionals. This layered approach aims to reach a broader audience by making it accessible to a greater variety of groups rather than just close watchers of monetary policy and central bank actions.
Engagement reviews how the public receives and understands central bank communication. The BoE holds regular citizens’ panels across the country with people from various backgrounds, increasing the reach of its messages. These panels enable the BoE to hear directly from the people it serves, allowing it to take into account their concerns.
Education helps people newly engaged with the BoE’s communications to better understand economic concepts. In the long term, education may reduce the cost of engagement by reducing shock or surprise during times of crises and uncertainty. To enhance this third strand of the communication strategy, some of the BoE’s staff have been going to schools across the country to speak to young people and help them understand the central bank’s role. The BoE has been distributing free education materials and publishing information on its website’s ‘knowledge bank’.
The Bank will need to measure whether and how its creative efforts succeed in managing expectations and improving levels of trust at a time of economic uncertainty. How it communicates is a key element in the BoE’s relationship with the public – a central part of its effectiveness as a central bank.
Listen to Helen Gibson discuss this topic in an OMFIF podcast with David Bholat, senior manager, advanced analytics and co-author of the Bank of England’s 2018 report, and Chris Peacock, head of content creation at the Bank of England.