This paper discusses the operations of a wide range of central banking institutions in developing countries. The considerable diversity of economic, financial, and political conditions within the Third World has brought forth a wide variety of central banking institutions. Four polar types have been identified as providing coherent alternatives to the central bank. Historical experience certainly indicates that legislation on its own may not be enough to guarantee prudent behavior. Although many countries' central banking institutions have not yet come close to violating foreign exchange cover requirements or restrictions on government lending, in other cases the rules have simply been sidestepped by technical adjustments, altered expediently, or merely ignored. The organizational structure established by legislation probably plays a more positive part in determining a central banking institution's characteristic behavior. Operating procedures, channels of communication, and lines of command all exert some influence on where and how decisions are made in practice. The balance of power between government and monetary authority does not only depend on personality and outside support but will also be influenced by the institutional framework in which their interaction is established.
Marco A Espinosa-Vega, Ms. Kazuko Shirono, Mr. Hector Carcel Villanova, Miss Esha Chhabra, Ms. Bidisha Das, and Ms. Yingjie Fan
This departmental paper marks the 10th anniversary of the IMF Financial Access Survey (FAS). It offers a retrospective of the FAS database, along with some reflections as to its future directions.
Since its 2009 launch, the FAS has provided granular data on access to and use of financial services. It is a supply-side database with annual global coverage based on data sourced directly from financial service providers—aimed at supporting policymakers to target and evaluate financial inclusion policies. Its data collection has kept pace with financial innovation, such as the rise of mobile money and growing demand for gender-disaggregated data—and the FAS must continue to evolve.
International Monetary Fund. Communications Department
This issue focuses on recent experiences that holds lessons for when to tackle debt and when not to. Growth is picking up, and the IMF has been ratcheting up its forecasts. Government coffers are filling and, with more people at work, demand for public social support is receding. Research shows that the stimulatory effect of fiscal expansion is weak when the economy is close to capacity. Low-income economies may be at greatest risk. Traditionally, they borrowed from official creditors at below-market rates. Higher global rates could divert precious budget resources to debt servicing from crucial infrastructure projects and social services. Raising budget balances toward their medium-term targets can be achieved at little cost to economic activity. Growth-enhancing infrastructure investments and crucial social services such as health and education should be maintained. Well-designed fiscal policy can address inequality and stimulate growth.
A national central bank is usually high on the shopping list of a newly independent country. Such a country often inherits a currency board—a carryover from the colonial era—and wishes to establish a new monetary authority with far wider executive powers and public responsibilities. Although the principal motives for acquiring such an institution may well be profit and prestige, central banking consists of much more than printing money and attending international conferences. Central banks in developed countries typically conduct a broad array of banking, regulatory, and supervisory functions. In a developing country, however, the problems and opportunities facing the monetary authority may be radically different from those encountered in the developed world. In recognition of this fact, not all of these countries have chosen to set up a full-fledged central bank: many have preferred alternative institutional arrangements. While inevitably a number of common formulas have been applied in designing such new forms of monetary authority, central banking legislation has generally been adapted to fit national needs, capabilities, and aspirations, while the practical execution of a blueprint has often been gradual and idiosyncratic. The result is a wide range of central banking institutions and a corresponding variety of objectives, constitutional powers, policy instruments, and relations with central governments. This paper surveys the alternative institutional forms that have emerged and seeks to explain the observed diversity of experience.
Central banks in the developed world are given a wide range of public responsibilities and endowed with a correspondingly broad array of executive powers. The activities of these institutions can be grouped into five general functions:
The discussion of Section II presupposed a complex economy, a sophisticated financial system, and a welleducated population. The situation in a developing country when it chooses its central banking institution may be very different. Its economy may be dominated by a limited range of exports and faced by terms of trade beyond domestic control. Its financial system may be rudimentary, based on foreign-owned commercial banks financing commerce and export industries, an informal credit network serving much of the rural economy, and an inherited central banking institution which is essentially a currency board. Its population may be short of workers trained in the technicalities of finance and relatively unsophisticated in appreciating the economic realities of a situation. In these circumstances, an overriding consideration must be to ensure that the new monetary authority will be able to establish credibility as a responsible and effective body that is capable of instilling domestic and foreign confidence in the domestic currency and financial system. At the same time, it must be accepted that the new institution cannot hope to undertake immediately all of the functions of the full-fledged central bank, while the scope for central banking activities would be considerably different from that in a more developed country.