Transparency: National Bank of Georgia

When the National Bank of Georgia unveiled a new financial education website, FinEdu, last year, it represented the latest step in a series of initiatives aimed at revolutionising transparency at the central bank. Many of these changes followed the appointment of Koba Gvenetadze as governor in March 2016.

The former International Monetary Fund economist prioritised improving both the quantity and the quality of the information released by the NBG as part of a strategic goal to improve communications.

In particular, greater transparency is viewed as a vital part in making the NBG’s inflation-targeting regime work more efficiently, Gvenetadze told Central Banking in October 2020. The NBG had adopted the regime in 2009, and the central bank’s staff calculated a projected future inflation rate, but the projections were kept private. Gvenetadze decided to publish them, although not all officials agreed with this at first.

“Some viewed the risk of the publication of forecasts as tying the hands of the central bank, but it doesn’t, because it is conditional: you publish it, but if the circumstances change, you may change it later,” he told Central Banking.

“The most important aspect is that you need to explain why did you it.”

The central bank’s publication of the forecast rate has allowed market observers to write well-informed analyses of the NBG’s inflation-targeting regime as they gain a more complete picture of the central bank’s thinking on monetary policy. “It makes policy more predictable, but it had to come hand in hand with greater communication,” said Gvenetadze.

That led to another innovation. The governor began giving extended press conferences after each of the NBG’s monetary policy meetings. The NBG takes eight monetary policy decisions a year, each followed by a press conference. At four press conferences every year, there is no time limit set for the governor to respond to questions raised.

Gvenetadze believed this had a perceptible effect: “Very soon we saw a fall of 1.5–2.0 percentage points in the interest rate, which means that the public started trusting our monetary policy more than before, and this predictability helped to improve the positive impact.”

The governor now faces plenty of difficult questioning. At the September 16 press conference last year, for example, several journalists posed a series of critical questions about the NBG’s failure to stabilise the exchange rate of Georgia’s currency, the lari, despite spending $120 million on market interventions. Gvenetadze rebutted this: the NBG only intervened on currency markets when the lari’s instability looked like threatening the inflation outlook, he explained.

Gvenetadze’s work with the IMF in emerging countries during the global financial crisis convinced him that the NBG had to increase its financial stability work. He directed the NBG to establish a financial stability department, making use of technical assistance from the IMF to build up its expertise.

“Our main mandate is for price stability, but we are also responsible for financial stability and the transparency of the financial system,” he said.

This in turn led the NBG to share more information about Georgia’s financial system. The central bank had previously published financial stability reports, but the last one had appeared in 2012. The NBG recommenced publishing annual financial stability reports in 2019, after some introspection about what constituted a good one.

“The best ones are forward-looking,” the governor told Central Banking. “They analyse the risks that may come in the future, rather than just analysing what happened in the past – although this is also very important.”

The two reports that have been published in the past two years, in English and Georgian, are thorough and clear accounts of the country’s financial system.

Gvenetadze identified other priorities to be improving the financial literacy and consumer protection of Georgia’s citizens: “These two concepts are linked because your ability to successfully protect your rights only comes once you are financially educated.”

The move followed a spate of loosely regulated entities offering Georgian consumers online lending with very high interest rates.

“Consumers were not fully aware of the risks they had been taking,” Gvenetadze noted.

Improving financial education required considerable change in the way the NBG communicated. In 2020, the NBG launched what it described as the country’s first financial education web portal. It brought together a range of materials, created by the central bank and stakeholders in the Georgian financial sector. Faced with the increasing complexity of financial products and the aggressive nature of some firms’ advertising campaigns, the NBG aimed to present reliable and impartial information.

The FinEdu site offers a variety of media, allowing users to watch videos, use financial calculators, read articles and guides, and download training modules. Financial experts from outside the central bank contribute to its blog. The project uses social media to foster a dialogue with members of the public. The central bank said it also aimed to facilitate all interested parties, from the government, educational institutions, the financial sector and civil society, to collaborate in developing learning resources.

In several important ways, the NBG has considerably increased the transparency of its communications with the public and the financial sector. Gvenetadze believes these efforts have bolstered its monetary policy and helped it improve the NBG’s financial stability work. Its latest efforts should help to increase Georgians’ understanding of finance by providing clear, honest educational material.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Rachael King, Victor Mendez-Barreira, William Towning and Alice Shen