Central Banking Technical Assistance
- International Monetary Fund
- Published Date:
- January 1979
Technical assistance in central banking and currency matters has been made available to requesting members almost from the beginning of the Fund’s operations. It was in the early 1960s, however, when many newly independent nations became members, that this activity became a major element in the Fund’s technical assistance effort. Eager to establish their own financial institutions and to develop an appropriate financial infrastructure, new members turned to the Fund in increasing numbers for advice and technical assistance. As the number of requests mounted, the Fund recognized that it was necessary to devise new ways of providing these services. It met this need by creating the Central Banking Service, which—with the support of the more developed institutions—established a panel of outside central banking experts to provide such assistance. Since its inception in 1963, about 100 members or their dependent territories and 6 multinational organizations have received technical assistance under the central banking program. (See Chart 1 for further details.)
Chart 1.Number of Countries Receiving Central Banking Technical Assistance in the Field, 1964-781
1 Includes assistance rendered to Fund members and their territories and dependencies, and excludes assistance rendered to regional organizations.
2 Includes technical assistance rendered to Fund members, their territories and dependencies, and regional organizations.
During its early years, the technical assistance provided by the Fund under the central banking program was quite general in scope, dealing with the creation of new national currencies and the establishment of institutions to issue and regulate these currencies. By the late 1970s, however, the needs of most of the newly independent nations for assistance in setting up central banks and operational and regulatory frameworks for other financial institutions had largely been met. On the other hand, a number of previously established institutions had begun to request more specialized assistance in modernizing or reforming their financial systems.
As their economies expand and grow more complex, members often find that they face difficulties in refining their use of monetary policy instruments or in effectively regulating their financial institutions. In legislative matters, members sometimes perceive a need to adapt their central bank statutes or general banking laws to changed circumstances in their economy and financial markets. In a number of instances, members have looked to the Fund for technical assistance designed to help them overcome these difficulties. In response to this more specialized need, the focus of technical assistance in central banking has narrowed, but the demand for assistance remains considerable.
While the assignment of panel experts accounts for a major share of the technical assistance services provided to members under the central banking program, specialized advice given by the Fund staff is also an important part of this program. Such advice can be provided by the staff in several ways—by correspondence, by consultations held at Fund headquarters with members, or—most often—by sending Fund staff on short-term missions to the requesting member. Advisory assistance has been provided in such areas as central and general banking legislation, foreign exchange markets, centralized credit reporting programs, and central bank accounting. In addition, the Fund staff carries out diagnostic reviews of national financial systems, interest rate structures, and similar topics. The Central Banking Service shares responsibility with the Legal Department for technical assistance in respect of the preparation and drafting of central and general banking legislation. Although the Central Banking Service has primary responsibility for technical assistance in the central banking field, the area departments are also involved in this work as circumstances warrant.
In the course of carrying on the technical assistance activities described above, the Fund has accumulated a certain amount of specialized information on monetary, central banking, and financial matters generally. This gradually increasing store of knowledge sometimes serves as a source of potential solutions to problems facing central monetary institutions or to alert requesting authorities to inconspicuous difficulties that may hinder or limit the development of some proposed central bank activity. Although this source of information is still in an early stage of development, efforts are being made to enhance its potential usefulness to requesting members.
Technical assistance has not been restricted to members. On occasion, advice has been provided, and experts have been assigned to countries that were about to join the Fund. In a few cases, assistance has also been made available to dependent territories of members in response to the member’s request on behalf of the local authorities.
Institutions eligible for central banking technical assistance include central monetary institutions other than central banks, such as currency boards and monetary agencies, as well as institutions that carry out only part of the functions of a central bank. Similarly, such technical assistance has been provided to central monetary institutions common to several member countries and to ancillary nonbanking institutions organized to meet the specialized needs of their respective member central banks.
Panel Experts on Executive and Advisory Assignments
Experts assigned under the central banking program may serve in executive, as well as in advisory, roles. In either case, the expert, by the terms of his appointment, is made solely and directly responsible to the institution he serves. The Fund, while making the expert available to the host institution, assumes no responsibility for his actions or omissions.
In many cases, panel experts can function effectively in a purely advisory role; in others, however, executive responsibilities in managerial or operational posts are assigned by the member to the expert as the only feasible way to conduct the activities of the central bank effectively, particularly in some of the newer institutions where there are shortages of managerial expertise and qualified local personnel. The need for executive appointments may also arise where a clear delegation of operating authority to specific officials is essential vis-à-vis third parties, such as the central bank’s foreign correspondents, or for the conduct of domestic operations with the government and local banks.
An advisor, by the nature of his role, cannot accomplish such tasks except through the acceptance of his advice by a local official; where no qualified local official can be found within the bank, there may be no alternative to the appointment of the outside expert to an executive position with operational responsibilities. Similarly, a long-established central bank may request the appointment of an expert to an operational position at the departmental level because the bank has extended its activities to a new field that is unfamiliar to local officials.
The Fund’s policy has been to favor the assignment of experts in advisory roles, especially at the highest policymaking level, where technical expertise is no substitute for familiarity with local mores and traditions. Continuing efforts are made to phase out executive assignments at the earliest opportunity, not only in deference to local sensitivities but also to minimize the risk of appearing to hinder the promotion prospects of local officers. Commonly, this phasing out process is accomplished by arranging for a local official gradually to assume the executive role while the panel expert assumes an advisory one for a limited period.
Since 1963, some 400 panel experts have been made available under the central banking technical assistance program. Of these, almost three fourths were appointed to advisory positions. Of the executive appointments, all but a few had been phased out by the end of 1978. In the mid-1960s, somewhat more than half the technical assistance assignments in central banking were for managerial or operational positions, but by 1978 this proportion had fallen below one fourth. Moreover, the majority of the current executive assignments are at the departmental, rather than the senior policy, level. Experts still serving in senior management positions have been assigned almost exclusively to recently established institutions, and the Fund continues to encourage local authorities to replace them with local officials as quickly as possible.
Relationship Between Fund and Host Institution
Requests for the assignment of an expert or experts from the central banking panel may be made in several ways. The most common approach is a direct request to the Fund’s management or to the Central Banking Service, but requests may also be channeled through the Executive Director elected or appointed to the Executive Board by the member in question or through an area department of the Fund.3
Once a request is evaluated and a potential candidate with appropriate experience and qualifications has been identified, the staff recommendations, including administrative and financial arrangements, are presented to the Fund’s management for approval. The nature of the assignment is clarified through discussions with the authorities of the host institution. These discussions aim at a clear definition of responsibilities and designation of channels of communication between the expert and his host institution, while still allowing sufficient flexibility for the expert to deal with all facets of the assignment.
A joint review of the terms of reference by the expert and the local authorities is conducted after the first few weeks of the assignment. The terms of reference may then be revised, but thereafter any substantial alteration of the expert’s duties requires concurrence at the Fund.
An excessively rigid definition of the expert’s duties prior to his assignment is neither desirable nor feasible, given his day-to-day involvement in the operations of the host institution. The evolution of the host central bank sometimes requires corresponding shifts in the emphasis placed on the expert’s responsibilities. Moreover, not all of the problems that the expert will be called upon to face are definable in advance. An expert is often obliged to identify problems and to fix priorities for their resolution, as well as to assist in the work itself.
The curriculum vitae of the candidate selected for an assignment is submitted informally to the requesting authorities at an early stage for approval in principle of the candidate. The subsequent contractual arrangements between the Fund and the host institution require formal agreement on three basic elements: (1) the nature of the expert’s task; (2) the immunities and privileges to be accorded him by the host country; and (3) the contribution of the host institution toward the cost of the assignment.
Relationship Between Fund and Expert
The panel of central banking experts, which consists mainly of candidates whose suitability has been confirmed by interviews, is maintained by means of frequent contacts with the candidates and the institutions that can make suitable experts available. Requests for technical assistance that cannot readily be fulfilled by selection from the panel lead to an ad hoc recruitment effort, with donor institutions and other contacts often assisting in the search.
Experts are drawn mainly from the senior ranks of central banks and include a few retired officials, but they are also recruited from regulatory agencies, other financial institutions, and universities. Exceptionally, Fund staff members on long-term leave of absence are recruited. Although significant progress has been made in broadening the sources from which experts are drawn (currently, they come from some 30 countries), the majority of panel experts continues to come from a small number of central banks.
The basic administrative and financial arrangements between the expert and the Fund were established by the Executive Board. At the time the central banking program was established, there was unanimous agreement that the experts should be made entirely responsible to, and placed under the sole direction of, the host institution. No formal system of periodic reporting to the Fund by the expert on the progress of his assignment was prescribed, although it was noted that the interest of the Fund in a technical assistance assignment should not end with the appointment of an expert. The Executive Board also recognized that it was necessary to brief experts on their assignments, to provide appropriate terms of reference, and to evaluate the progress of their work.
From these bases, procedures have evolved over time in response to particular problems and to enhance the general usefulness of the technical assistance program. Since the Fund recognizes that it is desirable for experts who are not familiar with its practices to visit its headquarters as part of their preparation for an assignment, briefings by the Fund staff are arranged. In these briefings, the Fund’s role in the technical assistance assignment is explained in detail so as to preclude any misunderstanding by an expert of his relationship to the requesting member and to the Fund.
A formal letter is drawn up by the Fund which establishes the expert’s responsibility to the host institution. To facilitate the monitoring of his performance, each expert is required to submit a quarterly review of his assignment to Fund headquarters, including comments on the progress of his work relative to his terms of reference and on the recruiting and training of local staff. Experts are explicitly instructed not to mention any confidential information that becomes known to them in the course of their assignment.
Regular correspondence with experts and Fund staff visits to examine experts’ effectiveness have become the major instruments for monitoring their progress and form the basis not only for the appraisal of experts but also for the proper planning and management of the technical assistance program in central banking.