High priests and politics: building public understanding through changing central bank communications - Deputy Governor Sharon Donnery

15 November 2017 Speech
Central Bank of Ireland

Remarks by Deputy Governor Sharon Donnery at the European Central Bank Communications Conference


It is a pleasure to speak on today’s panel.1

Yesterday, we heard the stimulating presentation from Charles Evans regarding the future of Odyssean and Delphic forward guidance for monetary policy purposes.2 In an effort to look ahead on central bank’s communication for financial stability, let me turn to ancient Egypt.

In Egypt, high priests purportedly held a monopoly of knowledge over issues such as astronomy and the calendar. This gave them great power to predict the key to Egypt’s agricultural economy – the flooding of the Nile.3 Such a monopoly relied on the priest's exclusive access to the complex medium of hieroglyphics.4 And their forecasts had considerable economic implications. Prefects, for example, used the calendar and a nilometer – a measure of the inundation of the river Nile - to gain estimates of the size of the crop, which could then be used to calculate taxes and regulate imports accordingly.5

Paul Volcker once described the central bankers of Bretton Woods as “high priests or perhaps stateless princes… schooled in arts with which few are familiar, arts that required both a certain amount of secrecy and mutual confidence”.6

Such days are rightly over, as central banks – like all other public institutions – are increasingly held more and more accountable to the people they serve. But reputations are hard to rebuild.

This places the need for clear, consistent and effective central bank communications front and centre.

Of course, it may be overly simplistic to suggest the communications landscape of yesteryear was necessarily less challenging.

Nonetheless, I think we all would acknowledge that the financial crisis of 2008 – combined with the tectonic shifts occurring in media– have changed the landscape fundamentally.

Today, we operate with more fragmented political systems, with more fragmented media, and more fragmented audiences. These are issues which I think are shaping the need for greater public understanding and hence the communications agenda for the future, and ones I would like to discuss today.

At the same time, the need for effective central banking policy intervention became more stark, and mandates of several central banks rapidly expanded.

So trying to explain our increasingly complex role means swimming against this tide of fragmentation. But it’s precisely what we should do.

It’s not enough to say simply that central banks work in the public’s best interests. We have to show this is the case, by explaining precisely what we do and why we do it, and ensure we are understood – not just by markets, but by the public.

Public and political fragmentation

Turning to the first issue – political and public fragmentation, empirical work using long-run data, shows politics becomes more polarized in the aftermath of financial crises.7 This is in comparison to ‘normal’ or ‘exogenous’ recessions, and may be because financial crises are more directly attributable to policy failures, or because they more directly result in disputes between debtors and creditors.8 As we have seen in Ireland, people can be living with the effects for a long time.

With a more ideological public, more polarised politics, and more fractionalised parliaments, central banks face growing demands for greater accountability, enhanced political engagement, and greater understanding.

This necessitates a change in how we communicate.

Central banks and regulators alike have been delegated functions of the State. Whilst we covet our political independence, with the crisis, we failed – quite dramatically in the Irish case – to safeguard financial stability.

This resulted from a failure of economic thinking, a lack of tools, and a failure of implementation.9 This failure informed everything policymakers subsequently did, at national and international level, to ensure those shortcomings were remedied – work that remains ongoing.

Similarly ongoing is the task of rebuilding trust. It is understandable that the public and politicians lost trust in central banks and regulators as institutions.

Survey evidence shows that for the Central Bank of Ireland, for example, today many are still uncertain about the trustworthiness of the Central Bank as an institution, with 39% of people reporting neutrally and only 26% positively. Moreover, this shows little difference with the rest of the financial sector, despite the very significant work and institutional developments, to first restore and then maintain financial stability, and protect the public in the process.

Therefore, we have a lot of work to do to regain trust and confidence. That must begin with better explaining what we do and why we do it, in order to enhance public understanding and – one hopes – public confidence in time.

A challenging media landscape

We must do this against a fragmented media landscape – the second issue I would like to address today – and one that continues to pose new challenges.

Last month marked 500 years since Martin Luther, by tradition, nailed his 95 Theses on a church door in Wittenberg. A friend of Luther’s later wrote that - “hardly 14 days had passed when these propositions were known throughout Germany and within four weeks almost all of Christendom was familiar with them”.10 It was hugely impressive for the time. Today, Facebook would spread that sheet of paper across the world in five minutes.

While traditional media formats – newspapers in particular – are struggling, social media is booming, and most people these days get their news on mobile.

Newspapers in Ireland, some suggest, will be extinct in ten years.11 But on average, today, Irish people consume news in up to three separate formats a day. This means we must adapt with new channels and platforms, new ways to target our messaging, and new ways to deliver our messages. It also reinforces the need for consistency in communication.

But news is also increasingly curated to personal preferences and interests. That makes it all the harder for institutions like central banks. Complex – and sometimes hieroglyphic- policy-making is not suited to soundbytes, and even if it was, there’s no guarantee that soundbytes will cut through the filters and the noise.

And while we grapple with that problem, we are also typically grappling with increased mandates and an increasingly sophisticated global financial system that requires ever more rigorous analysis– the third issue I would like to address.

Growing mandates, communications and accountability

The truth is, despite our somewhat tarnished reputations, in most countries, central banks have been tasked with more and more functions.

In the Central Bank of Ireland, since the crisis, we have inter alia been appointed the National Resolution Authority, National Macro-prudential Authority, and re-merged fully with our National Competent Authority. This is in addition to acting as supervisor for the funds and asset management industry, insurance supervisor and ensuring we fulfil our consumer protection mandate.

Let me be clear there are many advantages to being an integrated supervisor. However, increasingly complex mandates makes communicating what we do, what we can do, and what we cannot do very challenging.

For example, sometimes there is a public perception that there are trade-offs between our consumer protection mandate and our prudential mandate for the banking sector. However, as an integrated organisation, we work to deliver consumer protection through a continuum of functions ranging from financial stability, through authorisation, prudential regulation, supervision and inspections to enforcement and redress.12

Survey evidence suggests a quarter of people have limited or no knowledge of the Central Bank of Ireland. Of those that do, the results are mixed. For example, 48% of people think we finance the government, a similar number think we promote financial services, and 20% think we give loans to the public.

So we have a lot of work to do.

Financial stability, in particular, is a somewhat nebulous concept with no widely accepted definition or analytical framework.13  We also have very imperfect measures of financial stability.14 This makes accountability challenging - it is after all quite difficult to be fully accountable for something that is perceived by its absence. Communications are equally difficult.

For example, in Ireland, in 2015 we introduced loan to value (LTV) and loan to income (LTI) measures to enhance both bank and borrower resilience. Communicating that we cannot, and do not, target house prices has proven very challenging.15  Effective communications can, however, contribute to financial stability, for example through informing, signalling, and influencing expectations.

In other areas of the financial sector our macro-prudential toolkit is untested. Building public understanding and trust also means being humble about what we know, and clear about what we do not. Whether this is about the relationship between fundamental macro-economic variables like inflation or productivity, or risks in the financial sector.
Looking ahead therefore, across all policy spaces, I think we must be much clearer about what we can do, but even clearer about what we cannot.

It is even more difficult to explain our mandate when one considers the institutional environment we operate in.

For example, for monetary policy purposes - we have the Eurosystem, for supervision - the Single Supervisory Mechanism, and for resolution - the Single Resolution Mechanism. For insurance and funds we have less hardwired fora for engagement with EIOPA and ESMA.

Whilst acronyms like the ESCB, ESRB, ESFS and ESAs may roll off our tongues with ease, it is a very complex architecture to communicate. Moreover, accountability for decision-making also becomes diffuse.

Nonetheless, we cannot treat these as excuses. An increasingly informed and questioning public rightfully expects central banks to be increasingly accountable and transparent.

We have a responsibility to change how we communicate, but we must communicate to enhance understanding. And as I’ve said, this is not just for financial markets, but for politicians and the public alike.

For our mortgage rules for example, we endeavour to be as transparent as possible with annual reviews of the framework, publishing feedback statements, holding roundtables with experts and press conferences, and publishing all the evidence on which our decisions are based. We also publish accounts of our Macro-prudential Measures Committee where we discuss our views on the mortgage rules and other such instruments like the counter-cyclical capital buffer.16

Everyone in this room can, no doubt, list the various media, outreach and digital initiatives they are undertaking to increase accountability and transparency, all of which are welcome.

But to some extent, these are tactics not strategies.

However, in order to truly build public understanding over time, we need to be consistently strategic as well as tactical in our communications.

This is essential as enhanced public understanding of what we do, and why we do it, makes policy more effective.

Strategy first, communications second

Strategic communications means having an objective in mind and setting out a plan to get there.

If our goal is to build public understanding and trust – not just for the sake of it, but to lead to better policy in the public interest – then we need to plan accordingly to achieve it.

To my mind, there are two core elements to such a plan. The first is to recognise that, in normal times, central banks can no longer retreat behind the wall – we must communicate openly, clearly and consistently. This is essential, and should stand us in good stead if and when future crises occur. Engaging when it is easy to do so, makes it much easier when things get difficult.

Rather than wonder in such events how we should communicate, we will have a template to follow, rather than have to try and invent an approach from scratch, or battle a deluge of criticism from social media.

This strategy should be underpinned by basic principles – that we work to be accountable and transparent not because we must, but because we should.
And finally, being strategic does not mean ‘spinning’.

As central banks, we have a duty to explain our decisions, and the rationale behind them. A duty to explain how we arrived at our forecasts, or why we adjusted our macro-prudential rules.

In order to achieve this, we should handle communications much in the same way as we handle policy - as public servants, we set out to make the wisest possible policy decisions in the public interest, by using our experience, reassessing our models, refining our tools, being open to change, and all times, seeking to find the correct solution. So listening and learning are rooted in what we do and are key guiding principles.

Communications should be no different – in order to achieve our strategic objective – we need to break through the noise and filters by trying and testing various approaches, mediums and channels in order to arrive at the best possible solution to inform the public as widely as possible.


This is, of course, relatively new terrain for a lot of central banks, and rough terrain in some instances.

We have a lot of ground to cover. I firmly believe that the journey will be worth it.

We must shake our image of being secretive, detached and out of touch organisations.

We must aim for the highest standards of transparency and accountability and sacrifice ourselves to the attainment of those goals.

Not just because accountability is essential in itself. But because better understanding of what we do, in turn, leads to more effective policy.

And that means we serve the public more effectively, which is what we’re here to do in the first place. 


1 I would like to thank Mícheál O’Keeffe, Paul O’Brien and Jill Forde for their assistance in preparing my remarks. 

2 Campbell, Jeffrey R., Charles L. Evans, Jonas D. M. Fisher and Alejandro Justiniano, 2012, "Macroeconomic effects of FOMC forward guidance," Brookings Institution, Spring Panel on Economic Activity, paper, March 22.

Also see ‘Central bank communication in a low interest rate environment’. Speech by Benoît Cœuré, Bruegel, Brussels, 31 March 2017.

See Di Norcia, Vincent, (1990, 342), Communications, Time and Power: An Innisian View, Canadian Journal of Political Science/Revue canadienne de science politique, Volume 23, Issue 2, June 1990 , pp. 335-357.

4 Ibid 

See LeRoy Wallace, Sherman, (1938, p32) Taxation in Egypt from Augustus to Diocletian, (Princeton University Press: Princeton). 

Volcker was describing the sentiments of officials working in the OECD’s Working Party Three in the 1960s. See Paul Volcker and Toyoo Gyohten, Changing Fortunes (New York: Times Books, 1992) in Andrew F. Cooper, Jorge Heine, Ramesh (Eds), (2013), The Oxford Handbook of Modern Diplomacy (Oxford: Oxford University Press).

7 See Funke, Manuel, Schularick, Mortiz, and Trebesch, Christoph, (2016), 'Going to extremes: Politics after financial crises', 1870-2014, European Economic Review, Volume 88, September 2016, Pages 227-260.

See Funke et al (footnote vii).

Also see Mian, Atif, Sufi, Amir, and Trebbi,Francesco, (2014), Resolving debt overhang: political constraints in the aftermath of financial crises, American Economic Journal: Macro-economics, 6 (2), 1–28.

Also see Brückner, Markus and Hans P Grüner (2010), “Economic Growth and the Rise of Political Extremism: Theory and Evidence", CEPR Discussion Paper 7723.

9 See for example ‘The Irish Banking Crisis Regulatory and Financial Stability Policy 2003-2008’, A Report to the Minister for Finance by the Governor of the Central Bank, Regling, Klaus and Watson, Max (2010), ‘A Preliminary Report on The Sources of Ireland’s Banking Crisis’, and ‘Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland’, Report of the Commission of Investigation into the banking sector in Ireland, March 2011, for a full analysis of the Irish case.

10 See The Economist, ‘Social media in the 16th Century How Luther went viral’, December 17th 2011.

11 See for example https://rossdawson.com/frameworks/newspaper-extinction-timeline/

12 See speech by Governor Philip R. Lane, ‘The Role of Financial Regulation in Protecting Consumers’, 23 Feb 2017. 

13 See for example Schinasi, Gary J., (2004), Defining Financial Stability, IMF Working Paper, WP/04/187.

14 See for example Gadanecz, Blaise and Jayaram, Kaushik, (2009), Measures of financial stability – a review, Bank for International Settlements, IFC bulletin. 

15 See for example Address by Sharon Donnery, Deputy Governor of the Central Bank of Ireland at the Dublin Economic Workshop Annual Economic Policy Conference, ‘Macroprudential policy: action in the face of uncertainty’, 24 September 2016.

16 For example, see information on the Central Bank of Ireland’s Macroprudential Measures Committee.