The European Central Bank is struggling to strike the right balance in what its policymakers say and to whom. In the process, it is stumbling into pitfalls which lie in wait for all central banks.
First, there was oversharing. Benoit Coeure, an ECB board member, revealed market-moving news on May 18 behind closed doors to a select audience which included investors from hedge funds. Critics loudly complained that Coeure gave them an inside edge on the big market moves that followed publication of the comments the next day. The ECB blamed an “internal procedural error” for the delay between the delivery and publication of the speech.
Now, there is a risk of undersharing. The embattled central bank has said it will stop giving journalists advance copies of policymakers’ speeches. That is an odd response since the early distribution does not seem to have caused any problems in the past. If anything, central banks avoid confusion by giving journalists time to think through the officials’ sometimes cryptic pronouncements.
An even bigger problem is that the ban doesn’t address the basic issue of how to stay in touch with markets without giving away privileged information. It’s not easy to share thoughts with people who consider your every word to be a money-making opportunity.
The ECB may want to avoid any taint of offering unfair privilege for a chosen few. But Coeure, like central bankers everywhere, needs to have many informal contacts with bankers and businessmen. Free exchanges with powerful insiders both allow central bankers to explain their intentions and give them insight into how policies might play out in the markets.
Granted, central bank officials could let sensitive information slip, as someone at the U.S. Federal Reserve might have done in 2012. But nothing short of forbidding all contact with outsiders can ever eliminate the risk. And decisions made in ivory towers are rarely the best.