Andrew Haldane: Halfway up the stairs Article by Mr Andrew G Haldane, Executive Director of the Bank of England, published in Central Banking Journal, 5 August 2014. *  *  *  “Halfway up the stairs Isn’t up, And it isn’t down. It isn’t in the nursery, It isn’t in the town.” AA Milne, Halfway Down (1924) It is the 25th anniversary of Central Banking. So it is a good time to be asking some big questions of central banking. How have central banks evolved over the last quarter of a century? How has the crisis affected that evolution? And what lies in prospect for them over the next 25 years? AA Milne’s 1924 poem, Halfway Down, is a fitting description of the position central banks find themselves in today. During the past 25 years or more, central banks’ mandates and instruments have moved upwards in steps. They have ascended the stairs. But where this leaves central banks today is not entirely comfortable. Halfway up the stairs is neither up nor down, neither nursery nor town. That begs a natural question about “where next” for central banks over the next quarter-century. Ascending the stairs History will show the 20th century to have been an unprecedented boom period for central banking. At the start of that century, central banks were relatively few in number. For those that did exist, their responsibilities were heavily constrained.
And with it, central banks had taken another significant step. At the same time as monetary policy discretion was being granted, constraints were being placed around it. These were a necessary part of democratic accountability. These constraints included government-set success criteria – for example, inflation targets. In the jargon, many monetary policy regimes became characterised by instrument-independence but target-dependence. They combined rules with discretion – hence “constrained discretion”. Yet as significant was the accompanying shift in central bank transparency. This was seen as a necessary concomitant of delegated power. A century ago, the prevailing central bank ethos allegedly came from the then-Bank of England (BoE) governor, Montagu Norman: “never apologise, never explain”. Then, secrecy and mystique were believed to be key weapons in central banks’ armoury. Media appearances were rare. Central bank actions were confined to the back pages of newspapers, if at all. At the BoE, the aim was to keep the Bank out of the press and the press out of the Bank. With independence granted, all that changed. Politicians and the public demanded explanations – and sometimes apologies – for policy choices. Policy meetings were preannounced and minuted. And regular publications, such as inflation reports and financial stability reports, set out the analyses underpinning these decisions. Media appearances and newspaper articles began to appear. Central banks moved from the back to the front pages of newspapers. Journalists were no longer locked out, but instead ushered in for press conferences. Another step up the stairs had been taken.