To act effectively and in the best interests of an economy, central banks must be accountable to the legislature and the public. Transparency and disclosure are essential to accountability. The concept of transparency includes providing an appropriate level of information to the public on policy decisions. The information should include the rationale for recent policy actions and allow for assessment of how possible future economic and political developments may affect policy.

In the United States, transparency is enhanced by disclosure, including announcement of policy actions and the rationale for those policy actions, the release of US Federal Open Market Committee (FOMC) meeting minutes regarding substantive discussions about the economic outlook and the appropriate course of policy and public testimony before Congress. The Federal Reserve also issues a press release following each FOMC meeting that includes a "balance of risks" statement that indicates how the committee assesses the risks of heightened inflation pressures or economic weakness in the foreseeable future.

It also reveals whether the committee believes the risks to achieving its goals are balanced or unbalanced. Since 2002, the release has included the results of the FOMC vote. If any of its members dissent from the approved policy action, the member is named and the preferred policy action noted.

The accountability of a central bank can also be facilitated by the legislature passing a specific, external and imposed law or decree. An appropriately designed central-bank law can contribute to the credibility of monetary policy. A good legislative framework makes monetary policy more credible, while at the same time allowing more flexibility. A central-bank law should have clearly defined and prioritised objectives, while at the same time ensuring that there are checks and balances in the decision-making process.

Authorities must ensure consistency between the objectives of a central bank, its authority, degree of autonomy and accountability. A single objective - typically, price stability - should be appropriate to make a central bank more accountable, rather than multiple targets that often create trade-offs. There should be a numerical target set for central banks to achieve price stability, rather than a general commitment.

Moreover, the legislative framework should define procedures for resolving potential conflicts with the government. Governments should have a right to overrule central banks during exceptional circumstances, such as times when a nation's sovereign right is exercised and during crisis management, as long as it is done in a transparent manner.

In sum, proper accountability requires central banks clearly to define and prioritise objectives, tasks and functions. Good central-bank governance means the objectives and tasks delegated to an institution are performed effectively and efficiently, thus avoiding misuses of resources, which is crucial for establishing a good track record.

The essentials for ensuring appropriate accountability by central banks are sufficient transparency and disclosure, a system of checks and balances and appropriately imposed legislation.

The author is director of the Financial Policy Section of the Finance Ministry's Fiscal Policy Office, and can be reached at chodechai@fpo.go.th. The first part of this series on central banks' accountability appeared on September 1.

Chodechai Suwanaporn