Transparency: National Bank of Ukraine

Central banks do not always find it easy to become more transparent to the outside world, even when they serve stable economies in orderly, peaceful countries. But the National Bank of Ukraine has dramatically increased its openness even as it had to cope with a host of serious problems, according to Central Banking.

Ever since a revolution brought down the country’s president in 2014, the NBU had to cope with a multiple problems, including rapidly spiralling inflation, an escalating war in the country’s east and a compromised banking system. It would have been tempting to release no new information, or even reduce the NBU’s transparency.

But under the leadership of governor Valeria Gontareva (2014 to 2017) and her successor, Yakiv Smolii (from May 2018 onwards), the NBU took the opposite path. It considerably increased the amount of information it released on how it did its job. The NBU worked hard at making this information available in a clear, timely manner to those who needed it.

Many of the changes the NBU made have been appreciated by international analysts (who are invited to join quarterly conference calls) and journalists covering the Ukrainian economy. The central bank answers queries accurately and regularly publishes data on Ukraine’s key economic indicators.

The central bank did not hide the extent of the problems it found in the country’s banking system. Instead, it gave clear information on the issues it found in many undercapitalised or fraudulently run banks. Its transparency in these matters has consistently improved during the past four years. This has put it well beyond the standards of some central banks in neighbouring countries, including some Eurosystem central banks.

Fighting ‘fake news’

But the NBU also had a very important domestic audience.

During the past four years, Ukraine has been one of the countries worst affected by the use of ‘black’ propaganda spread across the internet as well as by more traditional media. This has emerged as the country continues to fight against Russian-backed separatists in its eastern regions, while its politics have become increasingly factional and divisive.

The central bank became a particular target of some propagandists. Its support of the International Monetary Fund agenda of economic reform and liberalisation made it some powerful enemies in the media and political elites. This hostility was reinforced by the NBU’s reform of Ukraine’s banking sector, where it closed approximately 90 banks – many of which had powerful, politically connected owners.

The NBU reached out to Ukrainians using a variety of social media platforms, including Facebook, Twitter, YouTube and Instagram. It aimed to use plain language and as much visual content as possible

Countries across the world have seen how potent propaganda campaigns can be. Much of the Ukrainian population was suffering considerable economic dislocation during this period. If a majority of Ukraine’s citizens had begun scapegoating the central bank, as some influential people might have wished, the country would have faced serious problems.

To maintain trust with the population it serves, the NBU had to mount a proactive campaign. Local journalists are offered quarterly off-the-record meetings with board members, monetary policy announcements are offered under embargo for news agencies, and online chats are made available for questions during press briefings. The NBU also reached out to Ukrainians using a variety of social media platforms, including Facebook, Twitter, YouTube and Instagram. It aimed to use plain language and as much visual content as possible. The central bank made all its media events directly accessible to the public on its website and via YouTube.

Monetary policy

Many of the changes in transparency have been small and cumulative, but there have also been some large steps forward. One field that has seen major alterations has been the NBU’s monetary policy framework.

The NBU adopted an inflation-targeting regime, announcing goals for inflation in the three coming years. That, in turn, meant that its monetary policy committee had to issue regular bulletins on how it saw inflation developing and how it was reacting. The bulletins have been honest and clear – both when Ukraine’s inflation was falling to reach the targets the NBU had set, and then when it began rising well above target levels.

In March 2018, the NBU published its comprehensive strategy, setting out its seven key goals for the medium term. The first two goals were to achieve “low and steady inflation” and to bring stability. The central bank also set itself the tasks of bringing transparency and efficiency to the banking system, restoring Ukraine’s lending levels, achieving financial inclusion, efficiently regulating the wider financial sector and bringing about the free flow of capital. All of this needed to be supervised, the NBU said, by a “modern, open, independent and effective central bank”.

At first glance, these goals may seem unexceptionable: they are not ones that could be objected to by most central bankers in developed economies. But actually putting them into practice in Ukraine meant – and still means – taking on some formidable opposition.

The NBU was trying to achieve them in a context where it faced ever-harsher criticism from some Ukrainians, with senior NBU officials even receiving death threats from those unhappy with the cleaning-up of the banking sector.

No luxury

The NBU has increased its transparency as it has modernised its overall goals and operational methods. But it is not just doing so because transparency is a buzzword. If the NBU successfully maintains its increase in transparency, it is likely to reap huge benefits. Should it succeed in gaining credibility on operational matters – above all, in monetary policy – its effectiveness will be increased. And the NBU will find it hard to carry on reforming and supervising Ukraine’s financial sector without support from politicians, citizens and the media.

The NBU has considerably increased its transparency in the past year, and in the preceding three years, despite exceptionally difficult circumstances. Its next goal is to improve financial literacy as a step towards better dialogue with public.

By persisting with its efforts, the NBU has shown that increased transparency is not just something that benefits comfortably independent central banks in the world’s most prosperous jurisdictions. Transparency can also be a vital tool for central banks seeking to reform economies hit by crisis.