Abstract
For a number of years, the financial system [including the Central Bank of the Congo or BCC (Banque Centrale du Congo)] in the Democratic Republic of the Congo (DRC) has operated with limited resources in a climate of uncertainty created by political instability, civil war, and macroeconomic mismanagement. This difficult environment has resulted in major dysfunctions and evident weaknesses. In particular, the financial system has become irrelevant in mobilizing savings and providing credit to the economy. Empowered by the promulgation of a new central bank law enshrining its independence and a new banking law, the BCC has taken measures to remedy these weaknesses and help create the preconditions for a revival of financial intermediation. Although prospects have clearly improved, the challenges ahead are enormous. Technical, financial, and human resource needs are already considerable and are likely to increase as reunification progresses. This chapter discusses the challenges the BCC faces in seeking a resumption of financial intermediation. Section I offers an overview of the situation of the financial system following several years of political instability, macroeconomic mismanagement and the resulting hyperinflation, and of the initial response of the monetary authorities. It analyzes the causes of the unique monetary experience of the DRC that has been characterized by nonfungibility between the components of base money. Section II describes the policy measures that have been implemented by the monetary authorities to restore the fungibility of base money and subsequently shift to conventional monetary management, still in a context of low financial intermediation. Section III reviews the policy measures that, in the medium term, would foster reintermediation and dedollarization in the DRC context. Section IV draws some policy lessons from the DRC experience.
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