Botswana: Central Bank Clocks 40

| April 1, 2016

By Tebagano Ntshole

Gaborone - President Lt Gen. Dr Seretse Khama Ian Khama has paid tribute to the founding members of Bank of Botswana (BoB) who despite all odds, were able to establish a central bank just 10 years after Botswana gained its independence.

Speaking during the commemoration of the bank's 40th anniversary on Thursday March 31, President Khama said when the bank started its operations in 1976, the country had only two commercial banks, the financial sector was underdeveloped and very small and money market products needed for the conduct of monetary policy were non-existent.

"That was part of the reason it was commonly felt at the time that a central bank in such an environment would not do much beyond the issuance of a national currency," he said.

President Khama said the government's decision was bold as other than establishing a national currency, Botswana opted to exit the Rand Monetary Area. "It is fitting therefore, that we should acknowledge and celebrate the bank's achievement," he said.

In August 1973, the founding President, Sir Seretse Khama appointed a Commission led by Mr Quill Hermans, which recommended an establishment of a fully-fledged central bank, departure from Rand Monetary Area and establishment of a national currency.

"Such a recommendation was both well-informed but also brave and far sighted, going against the advice of many," President Khama said. On August 23, 1976, the Pula and Thebe replaced the South African currency, the Rand and Cent.

He said the newly issued legal tender did not have a sustainable pool of foreign exchange reserves to support its external value. Fortunately for Botswana, diamond mining commenced in late 1970s and with it, external account surpluses started building up, foreign exchange reserves increased and government revenues went up.

The central bank responded by opening a call account which was later replaced by Bank of Botswana Certificates in 1991, with a view to absorb excess liquidity and anchor short-term interest rates.

President Khama said other responsibilities of the bank included the formulation and conduct of monetary policy in order to rein-in inflation and promote economic growth by directly controlling the allocation of credit and related interest rates.

He said the bank also had to implement the exchange rate policy, administer exchange controls and regulate as well as supervise the relatively small banking sector in those days.

The President said the bank faced numerous challenges such as capacity constraints and unfavourable economic conditions at the time. He said Botswana's susceptibility to frequent droughts rendered it vulnerable to the challenges of weather and external economic and financial shocks.

"That is why among other functions, the bank has, over the years, prudently invested budgetary savings. These funds are reflected in the build-up of foreign exchange reserves which are held as precaution against natural disasters, a cushion against external economic shocks, such as the 2007/08 global financial crisis and economic recession, as well as the current commodity price downturn," he said.

President Khama said the funds are also used to guard against the stalling of the economy from external shocks or economic downturn, thus sometimes the need to stimulate the economy.

"We are aware that the last four decades have witnessed a rapid pace of global economic and financial interconnectedness, with a relative shift in international economic power centres," he said.

The President said Botswana has not been spared the impact of the global economic and financial ups and downs. "Although globalization rightly calls for shared responsibility in international economic and financial governance, so far, a suitable architecture for making inclusive and binding global economic and financial policy decisions has not yet emerged," he said.

President Khama said Bank of Botswana has provided government with sound economic and financial advice and its monetary policy has contributed to containing inflation within the medium-term range.

He said the generally low and benign inflation together with its favourable medium-term outlook, have led the BoB to reduce interest rates and in the process, striking an appropriate balance between boosting economic growth and promoting a culture of saving.

"The exchange rate has been stable and supportive of export competitiveness, foreign exchange reserves continue to be prudently managed, currency continues to be replaced by new families of banknotes and coin, as launched in 2009 and 2014, respectively and the country now has 10 banks that offer a variety of products, and the payment system is efficient and reliable," he said.

Furthermore, the President noted that the Bank's professional competence has been above board while its accountability and transparency have never been in doubt.

"It is these indispensable attributes that have ensured the bank's effectiveness which has earned it respect in the domestic and international financial community," he said.

Among the people who attended the ceremony were the Vice President Mr Mokgweetsi Masisi and Mr Hermans who served as the first governor from 1975 - 1977 and 1987 - 1996.

Source: All Africa

Category: Sports

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