Economic transparency

Economic transparency refers to banks and other financial institutions that have made data available about their financial position and condition. However, the definition depends on the perspective of different research areas through which it is examined, mainly monetary economics, international finance, corporate finance, and others (e.g. public economics, international trade, asset pricing, and labor economics). The WTO defines economic transparency as a “degree to which trade policies and practices, and the process by which they are established, are open and predictable.” (WTO’s 2014 glossary). United Nations Conference on Trade and Development (UNCTAD, 2012) relates to transparency as to “a state of affairs in which the participants in the investment process are able to obtain sufficient information from each other in order to make informed decisions and meet obligations and commitments”. According to the National Bureau of Economic Research (NBER) there are three main branches: transparency in economic policy, in the institutional structures surrounding the markets, and in the corporate sector.

Since financial crises in emerging market economies in the 1990s, the Asian financial crises in 1997-1998 among them, weakness of institutions, lack of transparency in actual balance-sheets of firms, unintelligible corporate structures, and incomprehensible financial markets have revealed as a fundamental issue. The following corporate fraud scandals in the United States and Europe (e.g. Enron, Tyco, WorldCom) in the early 2000s amplified the importance of this issue even more. Finally, the financial collapse of renowned industries provoked demands for greater transparency to help improve corporate governance in the United States and other industrialized countries.

Fiscal transparency is perceived to be essential for informed decision making, for guaranteeing some accountability, and for maintaining fiscal discipline.

Central banks differ considerably in the ways in which they have become more transparent. The Bank of England has been a leading example in this regard.