Proposals

#16 The European Central Bank should communicate in a more accessible way to ordinary citizens

Most people know that the financial system impacts our daily lives, and yet only few understand how the system works, and the role that central banks, like the European Central Bank (ECB), play in them. Without the necessary knowledge, ordinary citizens cannot publicly debate important issues like monetary policies. These public debates also play an important role in keeping powerful institutions in check. 

The main reason for this is a lack of financial education and, therefore, financial literacy. While all students are taught about the history of world wars,  and basic mathematics, economics and finance are only optional courses, often reserved for university level education.

This lack of financial literacy is aggravated by the technical language used by experts, bankers, and some politicians, when they communicate with the wider public.

Former U.S Federal Reserve Chair Alan Greenspan is often quoted as saying “If I turn out to be particularly clear, you've probably misunderstood what I've said”.

The ECB is no exception to this. Whether it is through press conferences, social media or television appearances, the ECB struggles to communicate its policies and results in a way that the general public can understand.

Some argue that central banks are deliberately keeping the public in the dark about what a central bank does, by obfuscating their language with economic jargon and convoluted explanations. This has only led to more misunderstanding and distrust among citizens as regards the role of the banks.

This vacuum in people’s understanding of what the ECB does has been filled with myths and folk theories about how money is created and how debt is managed. These misunderstandings risk weakening people’s trust in the ECB and the European Union (EU) itself.

Other central banks and financial institutions are aware of this risk, and are taking steps to improve how they communicate with the millions of people affected by their decisions. A forerunner on financial literacy is the Central Bank of England, which has adopted the ‘3 Es of central bank communication’ — Explanation, Engagement and Education — as a guiding principle for informing the general public about its work.

But many central bankers are still very reluctant. There are valid reasons for why central banks may hesitate to speak in layman’s terms on its role in society. Words educate people, but they also move markets. By speaking in an oversimplified language towards citizens,  the central bank could cause confusion among financial investors and in turn cause temporary turmoil in the financial markets.

Mario Draghi, the former president of the ECB, once  said: “It’s important that the language being used maintains the subtle distinction between the central banking system and politics. It’s easy, in order to use the language of the people, to enter terrain that is not that of central banking but becomes politics, and that would be detrimental to the ECB’s independence.”

Despite this reluctance, the current ECB President, Christine Lagarde, has firmly committed herself to communicating more clearly to the public about the ECB’s policies. 

What do you think? Do you think that the ECB should do more to make its work understandable to the ordinary citizen? Or should the issue of financial literacy be the responsibility of national governments rather than central banks? Do you think that citizens should be a check on the powers of institutions like the ECB? Or should this be a role left to experts? 

➕ Pros

• A lack of understanding of what public policies do and how they function are not good for democracy. It makes it harder for civil society to scrutinize and hold accountable the actions of policy makers. 
• Greater popular understanding of the ECB’s policies would increase trust towards the ECB.
• Greater understanding of the ECB’s policies would increase the effectiveness of monetary policy, as it may encourage consumers and saversto adopt the very behaviors that the ECB is hoping to incentivise.

➖ Cons

• Oversimplifying ECB communications can create misunderstandings which could have negative effects on the financial markets.
• Simplifying language could blur the distinctions between central banking and politics.
• The ECB policies mainly work through financial intermediaries, therefore the cost of communicating to the large public would outweigh the benefits.