The relationship between a government and a central bank should be transparently laid down to help ensure the credibility of monetary policy and the professionalism of monetary management. If this involves central bank independence, then the arrangements for accountability should also be clearly spelt out.
A government must be accountable to the community it serves. This applies regardless of the structure of government or the political system within which the government operates. Variations in these characteristics merely affect the way in which accountability can best be achieved. Certain constitutional arrangements do make the process of achieving accountability a more spirited, and possibly more challenging, one. Our political system in Hong Kong, which involves a constructive tension between executive and legislature, provides a good example. But this does not derogate from the need for accountability.
However, along with different arrangements for achieving accountability, there are risks - of varying degrees - that long-term policy objectives in the best interests of the community might be distracted by short-term political influences. When the support of a community for its government is directly, and at frequent intervals, manifested in votes, the need for accountability can shorten the time horizon on the basis of which important decisions are taken. If the distraction reflects a conscious choice of the people, made on the basis of full information and objective analysis of the pros and cons, the costs and benefits, and the alternatives available, there can hardly be any objection. To use economic jargon, a community, like any individual, faces an indifference curve between different needs, and should be free to choose the optimum trade-off. But this is not easily achievable in practice, and as a result, the best interests of the community may sometimes be compromised by the distractions.
An area which supplies an abundance of examples of such distractions is the conduct of monetary affairs. Governments have in the past printed money and depressed the cost of borrowing to win elections or rally support on issues, bringing ultimately debilitating hardship to the people - even bringing themselves down in the process. Narrow political interference in monetary management has, in most cases, proven to be damaging to the long-term interests of society. In consequence, the international consensus now is that there should be adequate arrangements to ensure that the conduct of monetary affairs is free from political influence. Indeed, in the past ten years, there has been a distinct move globally towards greater transparency in the relationship between governments and central banks, involving greater autonomy, or formal independence, for central banks.
To the extent that it is, or may become, relevant to Hong Kong, I believe that this recent experience of others is something that we would be ill advised to ignore. The fact that we operate a rule-based monetary system with little significant discretion on the part of the Hong Kong Monetary Authority and a rather well developed banking supervisory system does make the issue a less relevant, or pressing, one in Hong Kong than in other jurisdictions. The situation is also helped by the high degree of transparency that we in the HKMA voluntarily maintain in what we do - for the good and simple reason that this facilitates the accountability we think is right. We give the full information on issues, to the extent that this does not undermine the effectiveness of what we do. We go out to the community and explain directly issues of interest and importance. We keep the elected representatives of the community fully briefed and take their views seriously. There is a standing offer to appear before the Finance Affairs Panel quarterly, with comprehensive presentations, and in addition to give special briefings on issues of current interest. We maintain close and very productive contacts with the media. As a result, I think monetary affairs in Hong Kong have so far been free of damaging distractions, and are conducted in a manner consistent with the long-term interests of the community. This is notwithstanding the point that occasionally our actions involve inflicting considerable pain on the community.
But as our society moves forward, after successfully meeting the challenges of the recent tough years, and learning a few lessons, we need to be careful not to create an environment or institutional arrangement that invites distractions and compromises the professionalism, impartiality and fairness of what we do in the HKMA. And where safeguards, appropriate to the unique circumstances of Hong Kong, are considered necessary, they should be introduced, and well ahead of time.
Joseph Yam
30 November 2000
More information on the HKMA's transparency policy can be found in the HKMA Annual Report 1999.
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