The following tables provide a summary of the reforms in the key central banking areas for the Baltics, Russia, and other countries of the former Soviet Union. The tables start with the implementation of monetary policy—specifically, the institutional context in which the central bank operates and its short- and medium-term operating targets, markets and interest rate management, and instruments and operating arrangements. They then move on to developments in the foreign exchange area and priorities for future reform. Significant attention is devoted to banking supervision and bank restructuring—first, the institutional framework of the banking system is covered; then, the structure and performance of the banking system is summarized; and, finally, bank restructuring measures in the individual countries are listed. The chapter concludes with summaries of payment systems and central bank accounting reforms.
Table 8.1.
Sources: Country authorities; and IMF.
Institutional Background for Monetary Policy Implementation, 1997
Table 8.1.
Sources: Country authorities; and IMF.
Institutional Background for Monetary Policy Implementation, 1997
| Central Bank Autonomy | Medium-Term Operating Framework and Targets | Short-Term Operating Framework and Targets | |
|---|---|---|---|
| Armenia | A revised central bank law was adopted in June 1996, giving more autonomy to the central bank while increasing accountability. The draft law states that the prime objective of the central bank is the achievement of price stability. | The central bank uses broad money as intermediate target. Monetary performance criteria under the program supported by the IMF include a ceiling on net domestic assets (NDA) of the central bank and a floor for net international reserves (NIR) of the central bank, with an indicative target for broad money. | The monetary base is used as the operating target. Interest rates from deposit and treasury bill auctions are used as indicators. Levels of the central bank’s NIR and NDA are very closely monitored. Foreign exchange intervention is used only to smooth sharp changes in the exchange rate or as a monetary instrument, with the exchange rate allowed to move more freely from late 1996. |
| Azerbaijan | A new central bank law was passed in June 1996. The law contains two key elements: (1) the central bank must maintain price stability and develop and strengthen the banking system; and (2) the Azerbaijan National Bank has independence to operate monetary and exchange rate policy. The law specifies that the central bank reports only to the president of the Azerbaijan Republic, and its financing of the government is limited to an amount that is determined by the National Assembly. | Monetary performance criteria under the program supported by the IMF include a ceiling on NDA of the central bank and a floor for the NIR of the central bank (on all currencies and on convertible currencies), with an indicative target for reserve money in manats. | The central bank has been giving an increasing weight to adhering to a reserve money target. Up-to-date banking figures are readily available, including the central bank’s daily balance sheet. The authorities have a good general awareness of targets to be monitored under the program supported by the IMF. However, as the central bank moves toward more sophisticated and frequent monetary operations, it may need a stronger capacity for short-term forecasting of financial flows. In addition, the collection and monitoring of market information will need to keep pace with the expansion of markets. |
| Belarus | The National Bank of Belarus appears to have lost the limited autonomy it had following the referendum on constitutional reform. Monetary and exchange rate policies are determined by the government and the central bank. The bank’s governor is a member of the cabinet of ministers but does not have ministerial rank. | There is no program supported by the IMF. Each quarter the central bank establishes maximum conditions for the bank’s net ruble internal credit. | Liquidity forecasts are systematically made on a daily basis for the next two weeks. Banks’ reserves are the day-to-day operating target. |
| Estonia | Central bank autonomy is not applicable because there is a currency board Arrangement: The Bank of Estonia does not lend to the government. | Estonia has a program supported by a precautionary Stand-By Arrangement from the IMF. Under the performance criteria of the arrangement, the currency board’s kroon liabilities are to be fully backed with foreign exchange at all times. | The central bank is bound by a money-creation rule that limits growth in base money to the growth in foreign exchange reserves. There is a fixed exchange rate. The central bank has not been managing the liquidity of the banking system actively. |
| Georgia | Objectives of the central bank are to maintain price stability and to foster the liquidity, solvency, and proper functioning of a stable market-based financial system. A new law enhancing the independence of the central bank was enacted in mid-1995. After operating for a prolonged period under an acting president, a new president of the central bank was confirmed by parliament on March 20, 1998. | Monetary performance criteria under the program supported by the IMF include a ceiling on NDA of the National Bank of Georgia and a floor on its NIR, with a financial benchmark for reserve money (including currency issued, required reserves, and balances in correspondent accounts). | Exchange rate developments are strongly influenced by the central bank’s interventions in the foreign exchange market. Significant progress has been made in establishing a liquidity management framework. However, difficulties prevail in projecting government transactions. |
| Kazakhstan | Under the 1995 central bank law, the National Bank of Kazakhstan has considerable autonomy in implementing monetary policy. The central bank’s objective is to maintain internal and external stability of the national currency. Beginning in January 1998, the National Bank will cease to grant credit to the government to finance budget deficits. | Monetary performance criteria under the program supported by the IMF include a ceiling for the central bank’s NDA, a floor for its NIR, and an indicative target for base money. | The Technical Committee of Monetary and Exchange Rate Policy (established in August 1995, and whose composition changed in May 1996) meets weekly to assess developments in the exchange rate, international reserves, central bank credit, and base money. The committee continuously monitors compliance with monthly targets, which are derived from quarterly targets formulated with the IMF. Liquidity projections are complicated by difficulties in gathering information on government transactions. |
| Kyrgyz Republic | The law, adopted in 1992, established a relatively high degree of autonomy for the National Bank of the Kyrgyz Republic. A new law, passed in 1997, prohibits direct lending to the government after January 1998, as well as direct participation in the primary auction of government debt. The law also contains provisions to enhance the transparency of central bank operations, regulates its relations with the government and other financial institutions, and defines the bank’s responsibility for currency policy. | Monetary performance criteria under the program supported by the IMF include ceilings on the central bank’s NDA and the banking system’s net claims on government, as well as a floor on NIR. Indicative targets include reserve money and NDA of the banking system. | Quarterly forecasts are based on extrapolations for the central bank’s main balance sheet items, split into monthly figures. Day-to-day monetary operations keep a close watch on reserve money and central bank credit to the government, in addition to keeping track of the foreign exchange, treasury bill, and credit markets. |
| Latvia | The Bank of Latvia has a large degree of autonomy. | Monetary performance criteria under the program supported by the IMF include a ceiling on the central bank’s NDA and a floor on its NIR, with an indicative target for reserve money and for the NDA of the banking system. | The central bank is building a database of daily figures, which are used for monitoring progress under the monetary program. Difficulties in forecasting the government’s cash flows (in part because it holds accounts in several banks) and lack of coordination between monetary and foreign exchange operations make active liquidity management difficult. |
| Lithuania | Since April 1994, Lithuania has had a currency board arrangement: The authorities are considering replacing the currency board, and adopting a new law ensuring the autonomy and accountability of the Bank of Lithuania. The Bank of Lithuania does not lend to the government. | Currency board liabilities (reserve money and other liabilities denominated by litas) are to be fully backed with foreign exchange at all times. In addition, the exchange rate is fixed. | The central bank is bound by a money-creation rule that limits growth in base money to the growth in foreign exchange reserves at the fixed exchange rate. The central bank generates limited amounts of reserve money through loans on open market operations, which may not exceed the established level of free foreign reserves. |
| Moldova | The objective of the central bank is to maintain stability of the national currency. The National Bank of Moldova (NBM) has independence to operate monetary and exchange rate policies. The central bank’s administrative council, in consultation with the government (primarily the Ministry of Finance), adopts an annual monetary program that is communicated to parliament every February. | Monetary performance criteria under the program supported by the IMF include ceilings on the central bank’s NDA and net claims in the government and a floor for the bank’s net international reserves in hard currencies, with indicative targets for the bank’s gross international reserves, reserve money, and broad money. | Since November 1995, the NBM has used reserve money as its main monetary target. The reserve money target, and its associated NDA and net foreign asset (NFA) levels, are usually adjusted based on the quarterly program targets. The short-term liquidity forecasting capacity, however, needs strengthening. |
| Russia | The central bank law passed in 1995 enhanced the independence of the Central Bank of Russia. | Monetary performance criteria for 1997 include a ceiling on the central bank’s NDA, defined as currency plus required reserves of commercial banks minus the NIR of the monetary authorities (central bank, government, and the Vneshekonombank). In addition, there is a floor for NIR of the monetary authorities. The program with the IMF includes quarterly performance criteria. | Liquidity forecasting: A five-day reporting system, introduced in 1995, allows the central bank to monitor banks’ liquidity. Information on domestic and foreign currency developments is incorporated in the five-day reporting system. Treasury bill yields, the interbank market rate, and the exchange rate are used to guide monetary policy. There is still a need for improved coordination between the money and foreign exchange desks. The central bank pursues an interest rate objective that is subsidiary to the exchange rate. |
| Tajikistan | A new law that substantially enhances the National Bank of Tajikistan’s (NBT) autonomy was adopted in December 1996. | Monetary targets include a ceiling for the central bank’s NDA and a floor for its net international reserves. | Short-term operating targets are set in line with the monetary program formulated with the IMF. The central bank’s foreign exchange operations have been used to manage short-term liquidity. While the central bank performs some liquidity forecasting, its framework needs to be strengthened, particularly operational data on state revenues and expenses received during each month, and on adjustments of the balances of the treasury’s current account. |
| Turkmenistan | In the past, the Central Bank of Turkmenistan has had little autonomy in the conduct of monetary policy, with decisions on the quantity and cost of central bank credit generally taken by the government and enforced by presidential decree. A reform program announced in late 1995 gave the central bank more autonomy in principle to implement a monetary policy aimed at price stability. Directed credits by presidential decree at highly negative real interest rates have been repeated in 1997. In addition, a presidential decree gave the central bank responsibility for preparing and implementing Turkmenistan’s annual monetary and foreign exchange program, which in practice meant fashioning a program to compensate for the monetary expansion resulting from a substantial amount of subsidized agricultural credit. At the same time, by mid-year the central bank was obliged to provide credit to wheat growers at zero interest rates. | There is no program supported by the IMF. The progress in monetary programming has been slow, reflecting the difficulty in projecting various balance sheet items, the existence of large quantities of quasi-and off-budget expenditures, and the lack of coordination with the Ministry of Economy and Finance. | The central bank uses projections prepared by the IMF as basis for setting liquidity targets, but the development of market-based interest rates has been hampered by the discontinuation of the credit auctions in March 1997. |
| Ukraine | Current (1991) legislation establishes some autonomy for the National Bank of Ukraine. The latest draft Law on the National Bank of Ukraine, which provides for effective independence, was considered on first reading in parliament in October 1997. | Monetary performance criteria under the program supported by the IMF include a ceiling on central bank NDA and a floor for NIR, with an indicative target for reserve money. | Within the medium-term framework, interest rates are the main operating target. Substantial progress has been made in developing a monitoring framework for short-term money and exchange market conditions, as well as a reporting framework for key program variables. Short-term forecasts of commercial banks’ reserves are prepared by the central bank. |
| Uzbekistan | The central bank law passed in 1995 enhanced the independence of the central bank, whose main objective is to maintain price stability. The central bank has independence to operate monetary and exchange rate policy. However, no formal limit is set on central bank financing of the government; central bank credit extended to the government must be approved by parliament. | There is no program supported by The IMF. | The central bank monitors commercial bank correspondent account balances closely. Basic operating targets are reserve money and excess reserves of commercial banks. The bank is developing an operating system to monitor banking system liquidity and reserve money changes. |
Table 8.1.
Sources: Country authorities; and IMF.
Institutional Background for Monetary Policy Implementation, 1997
| Central Bank Autonomy | Medium-Term Operating Framework and Targets | Short-Term Operating Framework and Targets | |
|---|---|---|---|
| Armenia | A revised central bank law was adopted in June 1996, giving more autonomy to the central bank while increasing accountability. The draft law states that the prime objective of the central bank is the achievement of price stability. | The central bank uses broad money as intermediate target. Monetary performance criteria under the program supported by the IMF include a ceiling on net domestic assets (NDA) of the central bank and a floor for net international reserves (NIR) of the central bank, with an indicative target for broad money. | The monetary base is used as the operating target. Interest rates from deposit and treasury bill auctions are used as indicators. Levels of the central bank’s NIR and NDA are very closely monitored. Foreign exchange intervention is used only to smooth sharp changes in the exchange rate or as a monetary instrument, with the exchange rate allowed to move more freely from late 1996. |
| Azerbaijan | A new central bank law was passed in June 1996. The law contains two key elements: (1) the central bank must maintain price stability and develop and strengthen the banking system; and (2) the Azerbaijan National Bank has independence to operate monetary and exchange rate policy. The law specifies that the central bank reports only to the president of the Azerbaijan Republic, and its financing of the government is limited to an amount that is determined by the National Assembly. | Monetary performance criteria under the program supported by the IMF include a ceiling on NDA of the central bank and a floor for the NIR of the central bank (on all currencies and on convertible currencies), with an indicative target for reserve money in manats. | The central bank has been giving an increasing weight to adhering to a reserve money target. Up-to-date banking figures are readily available, including the central bank’s daily balance sheet. The authorities have a good general awareness of targets to be monitored under the program supported by the IMF. However, as the central bank moves toward more sophisticated and frequent monetary operations, it may need a stronger capacity for short-term forecasting of financial flows. In addition, the collection and monitoring of market information will need to keep pace with the expansion of markets. |
| Belarus | The National Bank of Belarus appears to have lost the limited autonomy it had following the referendum on constitutional reform. Monetary and exchange rate policies are determined by the government and the central bank. The bank’s governor is a member of the cabinet of ministers but does not have ministerial rank. | There is no program supported by the IMF. Each quarter the central bank establishes maximum conditions for the bank’s net ruble internal credit. | Liquidity forecasts are systematically made on a daily basis for the next two weeks. Banks’ reserves are the day-to-day operating target. |
| Estonia | Central bank autonomy is not applicable because there is a currency board Arrangement: The Bank of Estonia does not lend to the government. | Estonia has a program supported by a precautionary Stand-By Arrangement from the IMF. Under the performance criteria of the arrangement, the currency board’s kroon liabilities are to be fully backed with foreign exchange at all times. | The central bank is bound by a money-creation rule that limits growth in base money to the growth in foreign exchange reserves. There is a fixed exchange rate. The central bank has not been managing the liquidity of the banking system actively. |
| Georgia | Objectives of the central bank are to maintain price stability and to foster the liquidity, solvency, and proper functioning of a stable market-based financial system. A new law enhancing the independence of the central bank was enacted in mid-1995. After operating for a prolonged period under an acting president, a new president of the central bank was confirmed by parliament on March 20, 1998. | Monetary performance criteria under the program supported by the IMF include a ceiling on NDA of the National Bank of Georgia and a floor on its NIR, with a financial benchmark for reserve money (including currency issued, required reserves, and balances in correspondent accounts). | Exchange rate developments are strongly influenced by the central bank’s interventions in the foreign exchange market. Significant progress has been made in establishing a liquidity management framework. However, difficulties prevail in projecting government transactions. |
| Kazakhstan | Under the 1995 central bank law, the National Bank of Kazakhstan has considerable autonomy in implementing monetary policy. The central bank’s objective is to maintain internal and external stability of the national currency. Beginning in January 1998, the National Bank will cease to grant credit to the government to finance budget deficits. | Monetary performance criteria under the program supported by the IMF include a ceiling for the central bank’s NDA, a floor for its NIR, and an indicative target for base money. | The Technical Committee of Monetary and Exchange Rate Policy (established in August 1995, and whose composition changed in May 1996) meets weekly to assess developments in the exchange rate, international reserves, central bank credit, and base money. The committee continuously monitors compliance with monthly targets, which are derived from quarterly targets formulated with the IMF. Liquidity projections are complicated by difficulties in gathering information on government transactions. |
| Kyrgyz Republic | The law, adopted in 1992, established a relatively high degree of autonomy for the National Bank of the Kyrgyz Republic. A new law, passed in 1997, prohibits direct lending to the government after January 1998, as well as direct participation in the primary auction of government debt. The law also contains provisions to enhance the transparency of central bank operations, regulates its relations with the government and other financial institutions, and defines the bank’s responsibility for currency policy. | Monetary performance criteria under the program supported by the IMF include ceilings on the central bank’s NDA and the banking system’s net claims on government, as well as a floor on NIR. Indicative targets include reserve money and NDA of the banking system. | Quarterly forecasts are based on extrapolations for the central bank’s main balance sheet items, split into monthly figures. Day-to-day monetary operations keep a close watch on reserve money and central bank credit to the government, in addition to keeping track of the foreign exchange, treasury bill, and credit markets. |
| Latvia | The Bank of Latvia has a large degree of autonomy. | Monetary performance criteria under the program supported by the IMF include a ceiling on the central bank’s NDA and a floor on its NIR, with an indicative target for reserve money and for the NDA of the banking system. | The central bank is building a database of daily figures, which are used for monitoring progress under the monetary program. Difficulties in forecasting the government’s cash flows (in part because it holds accounts in several banks) and lack of coordination between monetary and foreign exchange operations make active liquidity management difficult. |
| Lithuania | Since April 1994, Lithuania has had a currency board arrangement: The authorities are considering replacing the currency board, and adopting a new law ensuring the autonomy and accountability of the Bank of Lithuania. The Bank of Lithuania does not lend to the government. | Currency board liabilities (reserve money and other liabilities denominated by litas) are to be fully backed with foreign exchange at all times. In addition, the exchange rate is fixed. | The central bank is bound by a money-creation rule that limits growth in base money to the growth in foreign exchange reserves at the fixed exchange rate. The central bank generates limited amounts of reserve money through loans on open market operations, which may not exceed the established level of free foreign reserves. |
| Moldova | The objective of the central bank is to maintain stability of the national currency. The National Bank of Moldova (NBM) has independence to operate monetary and exchange rate policies. The central bank’s administrative council, in consultation with the government (primarily the Ministry of Finance), adopts an annual monetary program that is communicated to parliament every February. | Monetary performance criteria under the program supported by the IMF include ceilings on the central bank’s NDA and net claims in the government and a floor for the bank’s net international reserves in hard currencies, with indicative targets for the bank’s gross international reserves, reserve money, and broad money. | Since November 1995, the NBM has used reserve money as its main monetary target. The reserve money target, and its associated NDA and net foreign asset (NFA) levels, are usually adjusted based on the quarterly program targets. The short-term liquidity forecasting capacity, however, needs strengthening. |
| Russia | The central bank law passed in 1995 enhanced the independence of the Central Bank of Russia. | Monetary performance criteria for 1997 include a ceiling on the central bank’s NDA, defined as currency plus required reserves of commercial banks minus the NIR of the monetary authorities (central bank, government, and the Vneshekonombank). In addition, there is a floor for NIR of the monetary authorities. The program with the IMF includes quarterly performance criteria. | Liquidity forecasting: A five-day reporting system, introduced in 1995, allows the central bank to monitor banks’ liquidity. Information on domestic and foreign currency developments is incorporated in the five-day reporting system. Treasury bill yields, the interbank market rate, and the exchange rate are used to guide monetary policy. There is still a need for improved coordination between the money and foreign exchange desks. The central bank pursues an interest rate objective that is subsidiary to the exchange rate. |
| Tajikistan | A new law that substantially enhances the National Bank of Tajikistan’s (NBT) autonomy was adopted in December 1996. | Monetary targets include a ceiling for the central bank’s NDA and a floor for its net international reserves. | Short-term operating targets are set in line with the monetary program formulated with the IMF. The central bank’s foreign exchange operations have been used to manage short-term liquidity. While the central bank performs some liquidity forecasting, its framework needs to be strengthened, particularly operational data on state revenues and expenses received during each month, and on adjustments of the balances of the treasury’s current account. |
| Turkmenistan | In the past, the Central Bank of Turkmenistan has had little autonomy in the conduct of monetary policy, with decisions on the quantity and cost of central bank credit generally taken by the government and enforced by presidential decree. A reform program announced in late 1995 gave the central bank more autonomy in principle to implement a monetary policy aimed at price stability. Directed credits by presidential decree at highly negative real interest rates have been repeated in 1997. In addition, a presidential decree gave the central bank responsibility for preparing and implementing Turkmenistan’s annual monetary and foreign exchange program, which in practice meant fashioning a program to compensate for the monetary expansion resulting from a substantial amount of subsidized agricultural credit. At the same time, by mid-year the central bank was obliged to provide credit to wheat growers at zero interest rates. | There is no program supported by the IMF. The progress in monetary programming has been slow, reflecting the difficulty in projecting various balance sheet items, the existence of large quantities of quasi-and off-budget expenditures, and the lack of coordination with the Ministry of Economy and Finance. | The central bank uses projections prepared by the IMF as basis for setting liquidity targets, but the development of market-based interest rates has been hampered by the discontinuation of the credit auctions in March 1997. |
| Ukraine | Current (1991) legislation establishes some autonomy for the National Bank of Ukraine. The latest draft Law on the National Bank of Ukraine, which provides for effective independence, was considered on first reading in parliament in October 1997. | Monetary performance criteria under the program supported by the IMF include a ceiling on central bank NDA and a floor for NIR, with an indicative target for reserve money. | Within the medium-term framework, interest rates are the main operating target. Substantial progress has been made in developing a monitoring framework for short-term money and exchange market conditions, as well as a reporting framework for key program variables. Short-term forecasts of commercial banks’ reserves are prepared by the central bank. |
| Uzbekistan | The central bank law passed in 1995 enhanced the independence of the central bank, whose main objective is to maintain price stability. The central bank has independence to operate monetary and exchange rate policy. However, no formal limit is set on central bank financing of the government; central bank credit extended to the government must be approved by parliament. | There is no program supported by The IMF. | The central bank monitors commercial bank correspondent account balances closely. Basic operating targets are reserve money and excess reserves of commercial banks. The bank is developing an operating system to monitor banking system liquidity and reserve money changes. |
Table 8.2.Sources: Country authorities; and IMF.
Markets and Interest Rate Management, 1997
Table 8.2.
Sources: Country authorities; and IMF.
Markets and Interest Rate Management, 1997
| Interbank Market | Government securities Market | Interest Rate Management | |
|---|---|---|---|
| Armenia | The interbank market has operated freely since July 1995. Trading has been limited in part because of risks in lending to banks and the absence of collateral in some banks (although these factors should be less important in the future), in addition to a general lack of pressure on excess bank reserves. | Primary market: Auctioning of treasury bills with maturities of up to one year started in September 1995, with preannounced minimum price and uniform price determination. The Ministry of Finance decides on timing, amount, and cutoff price. Outstanding volumes have continued to grow (by over 30 percent of M2 as of the end of 1997), partly based on demand from offshore sources. Auction participation has been growing, but often the auctions have not been fully covered by a price/yield deemed “reasonable” by the government, in which case the government uses its right to cut off the tender amount. However, this generally occurs less frequently than in the past. Secondary market: Virtually nonexistent due in part to a tax distortion, but this has recently been removed. | Deposit and lending rates of commercial banks are market-determined. The refinance rate set by the Central Bank of Armenia (positive in real terms throughout 1996) is used for setting the interest rate on central bank loans to government and the Lombard rate. |
| Azerbaijan | Most commercial banks redeposit their clients’ foreign currency deposits in one commercial bank (the Azerbaijan international Bank); some interbank deposits in manat occur on an interbank over-the-counter (OTC) (unorganized) interbank market; and commercial banks are allowed to offer refinance credit at the credit auction, but in practice only the central bank offers credit. | Primary market: Regular monthly auctions of one-month treasury bills commenced in September 1996. Three-month bills are already being offered, and six-month bills are envisaged for the near future. Twenty-three banks have been selected as primary dealers. The market is still very thin. Secondary market: In place, but trading is weak due to the small volume in circulation and the short maturity of the bills. | Deposit and lending rates of commercial banks are market-determined. Rates vary widely according to banks and client groups, reflecting a highly segmented financial market that lacks efficient arbitrage. The refinance rate since March 1995 has been determined at the credit auction. |
| Belarus | The interbank market developed steadily throughout 1995, becoming volatile toward the end of the year, as a result of the transfer of government and state-enterprise deposits to a newly merged bank. The market remained periodically volatile in 1996, mostly due to large injections of liquidity by the National Bank of Belarus (NBB) through directed credits. Volume grew over the course of 1997, while yields declined. Mid-month instability was partly due to seasonal fluctuations linked to tax payments. Central bank liquidity management operations had a stabilizing effect on the market. | Primary market: A market involving auctioning of treasury bills started in 1994 using the multiple price auction. Volumes have been growing; maturities of bills are from 6 to 12 months (as compared to one to six months in 1996). Auctions of long-term bonds have been held since October 1997. In both cases, the Ministry of Finance (MOF) decides on timing, maturity, amount, and the cutoff price. Secondary market: Consisting of banks and other financial institutions, this market has continued to grow. The market is expected to be structured as an exchange. Individuals are not allowed to operate in the treasury bill and long-term bond market. | The lending rates are market-determined, with the exception of loans issued within the framework of state programs, on which interest rates and margins are regulated by the government. Deposit rates: The minimum rate on deposits was eliminated in 1995 and reinstated in March 1997. Refinance rate: This rate is set by the National Bank and adjusted regularly with a view to keeping it above the anticipated rate of inflation. The refinance rate has been negative during most of 1997. The rate is used to finance the budget deficit and as a reference rate for nontargeted bank refinancing through repo and swap operations. Aside from the refinance rate, since October 1997 the central bank holds auctions of collateral credit, in which a fixed pre-set collateral rate is used as the minimum rate when submitting bids. Rates on banks’ deposits with the central bank are also used to set a floor for the interbank interest rate. |
| Estonia | The interbank market is used by commercial banks to minimize excess reserves. The variability of interest rates was low during the first half of 1997, increasing in the third quarter. Bank of Estonia certificates of deposit may be used as collateral in interbank operations; certificates of deposit were issued for market development purposes. In 1997, the role of the interbank market in bank liquidity management diminished, and activity was especially low in the fourth quarter. Transactions with maturities longer than one week have been rare. | There is no treasury bill market. | Deposit and lending rates of commercial banks are market-determined. Until November 1997, interest rates corresponded closely to German interest rates. The rise in base interest rates in mid-November 1997 reflects changes in the money market as well as measures taken by the central bank to tighten monetary conditions. The Bank of Estonia certificate of deposit rate has generally tracked the deutsche mark interbank market rate. The actual rate, however, is determined in monthly auctions. The interbank market rate, previously close to the short end (overnight to one week) of the deutsche mark interbank market rate, has risen sharply since September 1997 because of a temporary liquidity squeeze in the banking sector, determined by the substantial lending activity in the first half of 1997 and by the events in international money and capital markets. |
| Georgia | Commercial banks are allowed to borrow and lend at the interbank credit auction. While still somewhat thin, activity in the interbank credit market has picked up in 1997. | Auctions of treasury bills started in August 1997. The primary market is still very thin and the secondary market is virtually nonexistent. | Deposit and lending rates of commercial banks are market-determined. Although interest rates are positive in real terms, deposit mobilization remains low due to the lack of confidence in the banking system. Prudential limits on mobilization of household deposits were liberalized in January 1997; the limits on such deposits were increased from the amount of a bank’s capital to nine times the amount. Refinance rate: A Lombard facility was introduced in August 1997 with the rate set at a premium over the 28-day treasury bill rate. |
| Kazakhstan | The short-term money market was established in April 1995 with participation of the Central Clearing House, the National Bank of Kazakhstan, and 11 banks licensed by the central bank. Maturities of 1–30 days are traded. Collateral may be required for transactions of more than 14 days. Settlement takes place on the central bank books. The number of participants and the daily turnover increased until December 1995, but the turnover fell sharply in 1996, reflecting concern about the health of the financial system. At present transactions are conducted almost exclusively in the off-exchange interbank market. | Primary market: The first auction of three-month treasury bills took place in April 1994. With declining inflation, maturity of treasury bills was extended to six months in July 1995, and 12 months in July 1996. Stocks have been growing steadily at declining yields. In 1997, two-year bonds were introduced in auction format. One-year government bonds have been in circulation since 1996. Government securities are primarily issued for financing the budget deficit. Secondary market (OTC): Trading has expanded. A comprehensive regulatory framework for secondary operations, including repurchase agreements and electronic delivery-versus-payment settlement, was introduced by mid-1996. The market conducts repurchase and reverse repurchase operations. To manage liquidity, the central bank has recently begun repo operations in limited volumes. | Deposit and lending rates of commercial banks are market-determined. Bank margins are high, reflecting the high level of nonperforming loans. The refinance rate, which is charged on lending to the government, is set by the central bank. It is adjusted regularly in line with inflation to keep it positive in real terms and in accordance with the state of financial markets |
| Kyrgyz Republic | The over-the-counter (OTC) interbank market operates freely, and the volume is growing. | Primary market: Weekly multiple rate auctions of three- and six-month and one-year treasury bills are held. Primary dealership was established in 1996 and currently comprises 13 commercial banks. Since July 1997, large companies and nonprimary dealer banks may participate directly in the auction. An electronic trading system for government securities that links primary dealers with market participants was implemented in April 1998. A one-year non-negotiable savings bond with a flexible rate linked to the central bank’s refinance rate may be issued in 1998. Secondary market: An electronic trading system for government securities that links primary dealers with market participants will start to operate in 1998. | Deposit and lending rates of commercial banks are market-determined. The refinance rate (Lombard) is linked to the 90-day treasury bill rate. |
| Latvia | The interbank market operates freely. Maturities traded vary from overnight to between three months and one year. The market remains thin and interest rates relatively volatile. Rates on foreign currency-denominated transactions have fallen to levels that are only just above foreign rates (as proxied by the SDR interest rate). Rates on domestic currency-denominated transactions have fallen below the Bank of Latvia refinance rate. | Primary market: Auctions of treasury bills were introduced in December 1993 (multiple-price auction). Now 28-day, 91-day, 182-day, and one-year bills are offered in weekly auctions. Two-year bills were introduced in April 1997. Secondary market: Few banks are active in this market, and the amounts traded are small. A secondary window, which was established by the central bank in April 1994, provided substantial liquidity to the market. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is the central bank’s core interest rate, which is used to determine the rate on repurchase operations and the rates at the Lombard window. |
| Lithuania | The interbank market operates freely. It has been relatively inactive since the beginning of 1996 because of the banking crisis, but has recently begun to increase again. There is a small amount of interbank activity with treasury bills used as collateral among three or four banks. | Primary market Multiple-price treasury bill auctions, which were introduced in 1994, have been held since then. One-, three-, and six-month and one-year bills are offered in weekly auctions. No cutoff rate is set prior to the auction. Secondary market: The stock exchange organizes trading sessions daily. Commissions were lowered in October 1997. The savings bank holds more than half of the outstanding treasury bills and could become a market-maker. Limiting factors are the lack of trading skills and absence of an electronic information system linking market participants. The new Regulations for Government Securities Markets, recently adopted, introduced the OTC secondary market for treasury bills. | Deposit and lending rates of commercial banks are market-determined. Interest rates declined dramatically following the establishment of the currency board arrangement and currently are close to international rates. Emergency lending rate: The Bank of Lithuania announces official lending rates for liquidity and overnight loans. |
| Moldova | In the year ended October 1997, the volume of transactions in the OTC interbank market (primarily one- to three-month loans) increased 420 percent. Government securities are used as collateral. | Primary market: Auctions of 91-day treasury bills were introduced in March 1995; the range of maturity on offer has been expanded from durations of 28 and 91 days to 182, 273, 364 days, and two years. Special-purpose bonds are also issued with a maturity of 365 days and a fixed coupon rate. The Ministry of Finance published a three-month schedule of auctions indicating the amount of securities to be offered at each auction; sales are to banks approved as primary dealers. Sales based on individual contracts were seen as undermining the auction process and were therefore eliminated in January 1997. An electronic book-entry system was implemented in February 1996 by the National Bank of Moldova. A 15 percent 365-day discount bond was introduced in December 1996 (effectively paying 33 percent), and a two-year fixed rate bond with a coupon rate of 15 percent was issued at the end of 1997. Secondary market: Trading is beginning to get under way. An electronic data-processing system linking primary dealers and market participants is expected to be introduced in early 1998. A 0.3 percent tax on secondary transactions had been charged to the purchaser, limiting market development; this tax was canceled effective January 1, 1998. | Deposit and lending rates of commercial banks are market-determined. In February 1994, the central bank eliminated all remaining limits on interest rate margins applied to central bank credit on-lent to commercial banks, with the exception of loans guaranteed by the government. Refinance rate has been established by credit auctions since November 1993. |
| Russia | Markets were active in both rubles and foreign exchange until the August 1995 interbank market crisis. Market segmentation impedes the arbitrage within regions and markets. Core activity is at money center banks or clearing banks and at financial organizations owned by commercial banks. Maturities of ruble deposits and loans are largely of one to seven days, and most credit is unsecured. Lack of settlement balance account information may be hampering market development. On February 28, 1997, the Central Bank of Russia (CBR) introduced a multiple-clearing system (four sessions). | Primary market: A market in treasury bills (GKOs) of maturities up to one year has been ongoing since May 1993. GKOs are auctioned mainly for domestic debt management purposes. In 1995 a new instrument, the federal loan bond with a variable interest coupon (OFZ-PK), was introduced, with a maturity of longer than one year, and with the interest rate coupon linked to the yield on three-month GKOs. In December 1996, an OFZ-PK with a six-month maturity was introduced. Federal loan bonds with a fixed coupon yield (OFZ-PDs) with a maturity of up to 8 years have been on the market since 1997. There was a 25% rate of growth in volumes of primary placement in 1997 compared with 1996. Secondary market: A computer-based market administered by the Moscow Interbank Currency Exchange (MICEX) is rapidly growing. GKOs and OFZs are traded four times a week in 2½ hour trading sessions; all bonds are held in electronic book-entry form at MICEX, where regional trading began in 1996, with banks and financial companies outside Moscow having online access; transaction prices are rigidly pegged to the current MICEX situation, and the transactions themselves are registered with MICEX. A system of primary dealers was established (at the end of 1997 there were 37) who can operate with a short cash position limit. The central bank holds two daily repo sessions: the first one in the morning in a primary dealer auction format the second one at a higher fixed rate for primary dealers who need to cover overnight short positions. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is set in relation to the GKO market yield and the inflation rate. It is only used to set the overdraft facility rate and as a basis for rates for one-day settlement credits. The repo rate is the rate at which primary dealers in the government securities market borrow from the central bank to cover overnight shortfalls related to securities trading. A two-session mechanism for effecting repo operations was introduced in September 1997. The rate of the first session is determined from results of bidding at the primary dealer auction, and the rate of the second session is fixed and established by the central bank at a higher level. From February 1998, the Lombard rate has been established for 3–7, 8–14, and 15-30-day collateralized credit. Since November 1997 deposit rates have been established daily for ruble funds attracted by commercial banks for one day on an “overnight” or “tomnext” basis, and for seven days. Yields on treasury bills are market-determined, although the Ministry of Finance and the central bank sometimes intervene to smooth market fluctuations. |
| Tajikistan | The interbank money market is still at an embryonic stage of development. An interbank credit auction market was established in May 1995 to facilitate interbank transactions, but auctions were halted in August 1995. Limited over-the-counter trading among banks is taking place. | There is no market for government securities as yet. Primary auctions of treasury bills are scheduled to commence in the second half of 1998. | Deposit and lending rates of commercial banks are market-determined (the 10 percent maximum margin between banks’ lending rates and cost of funds was eliminated in 1995). Interest rates are positive in real terms. The central bank sets the refinance rate at the interest rate set at the credit auction plus 0.5 percent per month. |
| Turkmenistan | Commercial banks are allowed to borrow and lend freely among themselves, with some activity emerging, although the market remains thin and transactions are irregular, despite improvements in the timeliness of settlement balance account information. High-value transfers are handled separately, and some banks have electronic links to their branch network outside the capital. Interbank loans are unsecured and at positive real rates of interest. Interbank credit auctions are not active. | Primary market: Relatively small amounts have been issued since July 1994 (manat 8 billion by the end of 1997) al rates set by the Ministry of Economy and Finance; nonnegotiable; maturity was reduced from three months to one; issued in book-entry form; bought by commercial banks; with the exception of one auction in August 1996, the Ministry of Economy and Finance has acted independently from the central bank when issuing the treasury bills. Secondary market: Virtually nonexistent. | Deposit and lending rates of commercial banks, with the exception of a large volume of subsidized credit lo key sectors, are market-determined and currently positive in real terms. A ceiling of 15 percent on commercial bank loans to state enterprises was eliminated in late 1995. The refinance rate since 1996 has been set in the central bank credit auctions, but now is directly set by the central bank with a view on developments in the inflation rate. In the first ten months of 1997, the refinance rate has declined from 105 percent to 35 percent while remaining positive in real terms. Directed credit: Although in principle discontinued, a significant volume of directed credits were issued in December 1996 and mid-1997; interest rates on directed credits are set by presidential decree. |
| Ukraine | The interbank money market is active, although during 1996 the authorities intervened in order to direct lending to commercial banks with liquidity problems. | Primary market: The market continued to develop in 1997. Multiple-price auctions have been held daily since November 1997 (as compared to weekly by the end of 1996) and maturities offered regularly have been extended to include 546-day discount bonds. A total of 7.5 billion hryvnias worth of government securities was in circulation as of November 1997. The Ministry of Finance decides on timing, amount, and cutoff price after consultation with the National Bank of Ukraine, which is the government agent for auctions. The amounts of bills of each maturity to be offered for sale have been announced approximately one week in advance since January 1997. Significant nonresident purchases of treasury bills began in late 1996, with Ukrainian banks acting as agents for nonresident purchasers as required under law. Demand by nonresidents fell sharply in the last quarter of 1997. The government securities market operates on an electronic basis. Secondary market: Remains very thin. The central bank registers all secondary market transactions. | Deposit and lending rates of commercial banks are market-determined. The required link between lending rates and the refinance rate, which was introduced by the central bank in 1995, was abolished in late 1996. The refinance rate is set by the central bank and adjusted in line with inflation developments—normally positive in real terms. |
| Uzbekistan | Commercial banks are allowed to borrow and lend at credit auctions, but most credit is provided by the Central Bank of Uzbekistan. | Primary market: The first issue of treasury bills (GKO) occurred in March 1996, and the market is developing well. The volume of bills in circulation as of the end of October 1997 was 24.6 billion sum. Maturities are three and six months. Secondary market: Trades daily through a double auction, based on a trading system recently put in place. Turnover in secondary trading as of April 1, 1998 was 48.9 billion sum. Beginning in January 1998, nine primary dealers were selected as market-makers in bills, out of 22 dealers on the GKO market. The central bank conducts repurchase operations with primary dealers on the secondary market. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is adjusted in line with inflation and market developments. |
Table 8.2.
Sources: Country authorities; and IMF.
Markets and Interest Rate Management, 1997
| Interbank Market | Government securities Market | Interest Rate Management | |
|---|---|---|---|
| Armenia | The interbank market has operated freely since July 1995. Trading has been limited in part because of risks in lending to banks and the absence of collateral in some banks (although these factors should be less important in the future), in addition to a general lack of pressure on excess bank reserves. | Primary market: Auctioning of treasury bills with maturities of up to one year started in September 1995, with preannounced minimum price and uniform price determination. The Ministry of Finance decides on timing, amount, and cutoff price. Outstanding volumes have continued to grow (by over 30 percent of M2 as of the end of 1997), partly based on demand from offshore sources. Auction participation has been growing, but often the auctions have not been fully covered by a price/yield deemed “reasonable” by the government, in which case the government uses its right to cut off the tender amount. However, this generally occurs less frequently than in the past. Secondary market: Virtually nonexistent due in part to a tax distortion, but this has recently been removed. | Deposit and lending rates of commercial banks are market-determined. The refinance rate set by the Central Bank of Armenia (positive in real terms throughout 1996) is used for setting the interest rate on central bank loans to government and the Lombard rate. |
| Azerbaijan | Most commercial banks redeposit their clients’ foreign currency deposits in one commercial bank (the Azerbaijan international Bank); some interbank deposits in manat occur on an interbank over-the-counter (OTC) (unorganized) interbank market; and commercial banks are allowed to offer refinance credit at the credit auction, but in practice only the central bank offers credit. | Primary market: Regular monthly auctions of one-month treasury bills commenced in September 1996. Three-month bills are already being offered, and six-month bills are envisaged for the near future. Twenty-three banks have been selected as primary dealers. The market is still very thin. Secondary market: In place, but trading is weak due to the small volume in circulation and the short maturity of the bills. | Deposit and lending rates of commercial banks are market-determined. Rates vary widely according to banks and client groups, reflecting a highly segmented financial market that lacks efficient arbitrage. The refinance rate since March 1995 has been determined at the credit auction. |
| Belarus | The interbank market developed steadily throughout 1995, becoming volatile toward the end of the year, as a result of the transfer of government and state-enterprise deposits to a newly merged bank. The market remained periodically volatile in 1996, mostly due to large injections of liquidity by the National Bank of Belarus (NBB) through directed credits. Volume grew over the course of 1997, while yields declined. Mid-month instability was partly due to seasonal fluctuations linked to tax payments. Central bank liquidity management operations had a stabilizing effect on the market. | Primary market: A market involving auctioning of treasury bills started in 1994 using the multiple price auction. Volumes have been growing; maturities of bills are from 6 to 12 months (as compared to one to six months in 1996). Auctions of long-term bonds have been held since October 1997. In both cases, the Ministry of Finance (MOF) decides on timing, maturity, amount, and the cutoff price. Secondary market: Consisting of banks and other financial institutions, this market has continued to grow. The market is expected to be structured as an exchange. Individuals are not allowed to operate in the treasury bill and long-term bond market. | The lending rates are market-determined, with the exception of loans issued within the framework of state programs, on which interest rates and margins are regulated by the government. Deposit rates: The minimum rate on deposits was eliminated in 1995 and reinstated in March 1997. Refinance rate: This rate is set by the National Bank and adjusted regularly with a view to keeping it above the anticipated rate of inflation. The refinance rate has been negative during most of 1997. The rate is used to finance the budget deficit and as a reference rate for nontargeted bank refinancing through repo and swap operations. Aside from the refinance rate, since October 1997 the central bank holds auctions of collateral credit, in which a fixed pre-set collateral rate is used as the minimum rate when submitting bids. Rates on banks’ deposits with the central bank are also used to set a floor for the interbank interest rate. |
| Estonia | The interbank market is used by commercial banks to minimize excess reserves. The variability of interest rates was low during the first half of 1997, increasing in the third quarter. Bank of Estonia certificates of deposit may be used as collateral in interbank operations; certificates of deposit were issued for market development purposes. In 1997, the role of the interbank market in bank liquidity management diminished, and activity was especially low in the fourth quarter. Transactions with maturities longer than one week have been rare. | There is no treasury bill market. | Deposit and lending rates of commercial banks are market-determined. Until November 1997, interest rates corresponded closely to German interest rates. The rise in base interest rates in mid-November 1997 reflects changes in the money market as well as measures taken by the central bank to tighten monetary conditions. The Bank of Estonia certificate of deposit rate has generally tracked the deutsche mark interbank market rate. The actual rate, however, is determined in monthly auctions. The interbank market rate, previously close to the short end (overnight to one week) of the deutsche mark interbank market rate, has risen sharply since September 1997 because of a temporary liquidity squeeze in the banking sector, determined by the substantial lending activity in the first half of 1997 and by the events in international money and capital markets. |
| Georgia | Commercial banks are allowed to borrow and lend at the interbank credit auction. While still somewhat thin, activity in the interbank credit market has picked up in 1997. | Auctions of treasury bills started in August 1997. The primary market is still very thin and the secondary market is virtually nonexistent. | Deposit and lending rates of commercial banks are market-determined. Although interest rates are positive in real terms, deposit mobilization remains low due to the lack of confidence in the banking system. Prudential limits on mobilization of household deposits were liberalized in January 1997; the limits on such deposits were increased from the amount of a bank’s capital to nine times the amount. Refinance rate: A Lombard facility was introduced in August 1997 with the rate set at a premium over the 28-day treasury bill rate. |
| Kazakhstan | The short-term money market was established in April 1995 with participation of the Central Clearing House, the National Bank of Kazakhstan, and 11 banks licensed by the central bank. Maturities of 1–30 days are traded. Collateral may be required for transactions of more than 14 days. Settlement takes place on the central bank books. The number of participants and the daily turnover increased until December 1995, but the turnover fell sharply in 1996, reflecting concern about the health of the financial system. At present transactions are conducted almost exclusively in the off-exchange interbank market. | Primary market: The first auction of three-month treasury bills took place in April 1994. With declining inflation, maturity of treasury bills was extended to six months in July 1995, and 12 months in July 1996. Stocks have been growing steadily at declining yields. In 1997, two-year bonds were introduced in auction format. One-year government bonds have been in circulation since 1996. Government securities are primarily issued for financing the budget deficit. Secondary market (OTC): Trading has expanded. A comprehensive regulatory framework for secondary operations, including repurchase agreements and electronic delivery-versus-payment settlement, was introduced by mid-1996. The market conducts repurchase and reverse repurchase operations. To manage liquidity, the central bank has recently begun repo operations in limited volumes. | Deposit and lending rates of commercial banks are market-determined. Bank margins are high, reflecting the high level of nonperforming loans. The refinance rate, which is charged on lending to the government, is set by the central bank. It is adjusted regularly in line with inflation to keep it positive in real terms and in accordance with the state of financial markets |
| Kyrgyz Republic | The over-the-counter (OTC) interbank market operates freely, and the volume is growing. | Primary market: Weekly multiple rate auctions of three- and six-month and one-year treasury bills are held. Primary dealership was established in 1996 and currently comprises 13 commercial banks. Since July 1997, large companies and nonprimary dealer banks may participate directly in the auction. An electronic trading system for government securities that links primary dealers with market participants was implemented in April 1998. A one-year non-negotiable savings bond with a flexible rate linked to the central bank’s refinance rate may be issued in 1998. Secondary market: An electronic trading system for government securities that links primary dealers with market participants will start to operate in 1998. | Deposit and lending rates of commercial banks are market-determined. The refinance rate (Lombard) is linked to the 90-day treasury bill rate. |
| Latvia | The interbank market operates freely. Maturities traded vary from overnight to between three months and one year. The market remains thin and interest rates relatively volatile. Rates on foreign currency-denominated transactions have fallen to levels that are only just above foreign rates (as proxied by the SDR interest rate). Rates on domestic currency-denominated transactions have fallen below the Bank of Latvia refinance rate. | Primary market: Auctions of treasury bills were introduced in December 1993 (multiple-price auction). Now 28-day, 91-day, 182-day, and one-year bills are offered in weekly auctions. Two-year bills were introduced in April 1997. Secondary market: Few banks are active in this market, and the amounts traded are small. A secondary window, which was established by the central bank in April 1994, provided substantial liquidity to the market. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is the central bank’s core interest rate, which is used to determine the rate on repurchase operations and the rates at the Lombard window. |
| Lithuania | The interbank market operates freely. It has been relatively inactive since the beginning of 1996 because of the banking crisis, but has recently begun to increase again. There is a small amount of interbank activity with treasury bills used as collateral among three or four banks. | Primary market Multiple-price treasury bill auctions, which were introduced in 1994, have been held since then. One-, three-, and six-month and one-year bills are offered in weekly auctions. No cutoff rate is set prior to the auction. Secondary market: The stock exchange organizes trading sessions daily. Commissions were lowered in October 1997. The savings bank holds more than half of the outstanding treasury bills and could become a market-maker. Limiting factors are the lack of trading skills and absence of an electronic information system linking market participants. The new Regulations for Government Securities Markets, recently adopted, introduced the OTC secondary market for treasury bills. | Deposit and lending rates of commercial banks are market-determined. Interest rates declined dramatically following the establishment of the currency board arrangement and currently are close to international rates. Emergency lending rate: The Bank of Lithuania announces official lending rates for liquidity and overnight loans. |
| Moldova | In the year ended October 1997, the volume of transactions in the OTC interbank market (primarily one- to three-month loans) increased 420 percent. Government securities are used as collateral. | Primary market: Auctions of 91-day treasury bills were introduced in March 1995; the range of maturity on offer has been expanded from durations of 28 and 91 days to 182, 273, 364 days, and two years. Special-purpose bonds are also issued with a maturity of 365 days and a fixed coupon rate. The Ministry of Finance published a three-month schedule of auctions indicating the amount of securities to be offered at each auction; sales are to banks approved as primary dealers. Sales based on individual contracts were seen as undermining the auction process and were therefore eliminated in January 1997. An electronic book-entry system was implemented in February 1996 by the National Bank of Moldova. A 15 percent 365-day discount bond was introduced in December 1996 (effectively paying 33 percent), and a two-year fixed rate bond with a coupon rate of 15 percent was issued at the end of 1997. Secondary market: Trading is beginning to get under way. An electronic data-processing system linking primary dealers and market participants is expected to be introduced in early 1998. A 0.3 percent tax on secondary transactions had been charged to the purchaser, limiting market development; this tax was canceled effective January 1, 1998. | Deposit and lending rates of commercial banks are market-determined. In February 1994, the central bank eliminated all remaining limits on interest rate margins applied to central bank credit on-lent to commercial banks, with the exception of loans guaranteed by the government. Refinance rate has been established by credit auctions since November 1993. |
| Russia | Markets were active in both rubles and foreign exchange until the August 1995 interbank market crisis. Market segmentation impedes the arbitrage within regions and markets. Core activity is at money center banks or clearing banks and at financial organizations owned by commercial banks. Maturities of ruble deposits and loans are largely of one to seven days, and most credit is unsecured. Lack of settlement balance account information may be hampering market development. On February 28, 1997, the Central Bank of Russia (CBR) introduced a multiple-clearing system (four sessions). | Primary market: A market in treasury bills (GKOs) of maturities up to one year has been ongoing since May 1993. GKOs are auctioned mainly for domestic debt management purposes. In 1995 a new instrument, the federal loan bond with a variable interest coupon (OFZ-PK), was introduced, with a maturity of longer than one year, and with the interest rate coupon linked to the yield on three-month GKOs. In December 1996, an OFZ-PK with a six-month maturity was introduced. Federal loan bonds with a fixed coupon yield (OFZ-PDs) with a maturity of up to 8 years have been on the market since 1997. There was a 25% rate of growth in volumes of primary placement in 1997 compared with 1996. Secondary market: A computer-based market administered by the Moscow Interbank Currency Exchange (MICEX) is rapidly growing. GKOs and OFZs are traded four times a week in 2½ hour trading sessions; all bonds are held in electronic book-entry form at MICEX, where regional trading began in 1996, with banks and financial companies outside Moscow having online access; transaction prices are rigidly pegged to the current MICEX situation, and the transactions themselves are registered with MICEX. A system of primary dealers was established (at the end of 1997 there were 37) who can operate with a short cash position limit. The central bank holds two daily repo sessions: the first one in the morning in a primary dealer auction format the second one at a higher fixed rate for primary dealers who need to cover overnight short positions. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is set in relation to the GKO market yield and the inflation rate. It is only used to set the overdraft facility rate and as a basis for rates for one-day settlement credits. The repo rate is the rate at which primary dealers in the government securities market borrow from the central bank to cover overnight shortfalls related to securities trading. A two-session mechanism for effecting repo operations was introduced in September 1997. The rate of the first session is determined from results of bidding at the primary dealer auction, and the rate of the second session is fixed and established by the central bank at a higher level. From February 1998, the Lombard rate has been established for 3–7, 8–14, and 15-30-day collateralized credit. Since November 1997 deposit rates have been established daily for ruble funds attracted by commercial banks for one day on an “overnight” or “tomnext” basis, and for seven days. Yields on treasury bills are market-determined, although the Ministry of Finance and the central bank sometimes intervene to smooth market fluctuations. |
| Tajikistan | The interbank money market is still at an embryonic stage of development. An interbank credit auction market was established in May 1995 to facilitate interbank transactions, but auctions were halted in August 1995. Limited over-the-counter trading among banks is taking place. | There is no market for government securities as yet. Primary auctions of treasury bills are scheduled to commence in the second half of 1998. | Deposit and lending rates of commercial banks are market-determined (the 10 percent maximum margin between banks’ lending rates and cost of funds was eliminated in 1995). Interest rates are positive in real terms. The central bank sets the refinance rate at the interest rate set at the credit auction plus 0.5 percent per month. |
| Turkmenistan | Commercial banks are allowed to borrow and lend freely among themselves, with some activity emerging, although the market remains thin and transactions are irregular, despite improvements in the timeliness of settlement balance account information. High-value transfers are handled separately, and some banks have electronic links to their branch network outside the capital. Interbank loans are unsecured and at positive real rates of interest. Interbank credit auctions are not active. | Primary market: Relatively small amounts have been issued since July 1994 (manat 8 billion by the end of 1997) al rates set by the Ministry of Economy and Finance; nonnegotiable; maturity was reduced from three months to one; issued in book-entry form; bought by commercial banks; with the exception of one auction in August 1996, the Ministry of Economy and Finance has acted independently from the central bank when issuing the treasury bills. Secondary market: Virtually nonexistent. | Deposit and lending rates of commercial banks, with the exception of a large volume of subsidized credit lo key sectors, are market-determined and currently positive in real terms. A ceiling of 15 percent on commercial bank loans to state enterprises was eliminated in late 1995. The refinance rate since 1996 has been set in the central bank credit auctions, but now is directly set by the central bank with a view on developments in the inflation rate. In the first ten months of 1997, the refinance rate has declined from 105 percent to 35 percent while remaining positive in real terms. Directed credit: Although in principle discontinued, a significant volume of directed credits were issued in December 1996 and mid-1997; interest rates on directed credits are set by presidential decree. |
| Ukraine | The interbank money market is active, although during 1996 the authorities intervened in order to direct lending to commercial banks with liquidity problems. | Primary market: The market continued to develop in 1997. Multiple-price auctions have been held daily since November 1997 (as compared to weekly by the end of 1996) and maturities offered regularly have been extended to include 546-day discount bonds. A total of 7.5 billion hryvnias worth of government securities was in circulation as of November 1997. The Ministry of Finance decides on timing, amount, and cutoff price after consultation with the National Bank of Ukraine, which is the government agent for auctions. The amounts of bills of each maturity to be offered for sale have been announced approximately one week in advance since January 1997. Significant nonresident purchases of treasury bills began in late 1996, with Ukrainian banks acting as agents for nonresident purchasers as required under law. Demand by nonresidents fell sharply in the last quarter of 1997. The government securities market operates on an electronic basis. Secondary market: Remains very thin. The central bank registers all secondary market transactions. | Deposit and lending rates of commercial banks are market-determined. The required link between lending rates and the refinance rate, which was introduced by the central bank in 1995, was abolished in late 1996. The refinance rate is set by the central bank and adjusted in line with inflation developments—normally positive in real terms. |
| Uzbekistan | Commercial banks are allowed to borrow and lend at credit auctions, but most credit is provided by the Central Bank of Uzbekistan. | Primary market: The first issue of treasury bills (GKO) occurred in March 1996, and the market is developing well. The volume of bills in circulation as of the end of October 1997 was 24.6 billion sum. Maturities are three and six months. Secondary market: Trades daily through a double auction, based on a trading system recently put in place. Turnover in secondary trading as of April 1, 1998 was 48.9 billion sum. Beginning in January 1998, nine primary dealers were selected as market-makers in bills, out of 22 dealers on the GKO market. The central bank conducts repurchase operations with primary dealers on the secondary market. | Deposit and lending rates of commercial banks are market-determined. The refinance rate is adjusted in line with inflation and market developments. |
Table 8.3.Sources: Country authorities; and IMF.
Instruments and Operating Arrangements, 1997
Table 8.3.
Sources: Country authorities; and IMF.
Instruments and Operating Arrangements, 1997
| Reserve Requirements | Standing & Nonmarket-Based Discretionary Facilities | Market Operations | Other Instruments | |
|---|---|---|---|---|
| Armenia | Differentiated reserve requirements by maturity were introduced in May 1996. Unified reserve requirements at 8 percent were introduced by decree in early January 1997 to take effect from August 1997. From June 1997, cash in banks’ vaults will be excluded from the reserve requirement calculation. Since August 1997, at least 50 percent of the requirement on foreign-denominated deposits must be met in foreign currency whereas before, the requirement was up to 100 percent. Reserve balances are averaged over a two-week period, with a one-day lag. | Overdraft facility: No longer operational. Directed credit: Abolished in early 1995. Lombard facility: Credit provided for up to seven days, with a penalty interest rate of 1.3 times the refinance rate. Systemic credit: Uncollateralized credit is granted for up to one year, at somewhat concessional rates currently (inflation plus 20 percent). At least 30 percent of funds must be allocated to government securities, and 50 percent in interbank loans and commercial bank deposits. | Credit auction: No longer operational. Central bank auctioned deposits: Short-term Central Bank of Armenia deposits, which initially had 14- and 28-day terms, were introduced in September 1996. Outside auctions as a form of standing facility were also available. The central bank initially capped interest rates in auctions at well below treasury bill rates, but in December 1996 allowed auction rates to rise substantially. An auction of government securities held off-balance sheet by the central bank as collateral of the government credit line was held during the summer of 1997. The central bank signed a contract with the government to securitize the credit line in early 1998. The off-balance sheet treasury bills were auctioned alongside normal new issue bills in the treasury bill auction. Repos and reverse repos: These instruments were introduced on a very small scale in March 1996; they were then reintroduced more actively in early 1998 using the treasury bonds acquired by the central bank in the securitization of credit to government. | Central bank foreign exchange operations: Interventions now solely in the interbank market. In 1996 and 1997, the central bank used foreign currency sales as a main domestic monetary policy instrument, rather than orienting toward an exchange rate target, as the exchange rate was allowed to float more freely. |
| Azerbaijan | Reserve requirements were unified at 12 percent in February 1997 (up from 8 percent and 6 percent on manat and foreign exchange-denominated deposits, respectively). Banks must meet requirements on manat deposits in manats, and on foreign currency deposits in foreign currency. Requirements are calculated on the basis of daily average deposit balances. There is no averaging of reserve holdings. | Overdraft facility: In late 1994, all automatic overdraft facilities were abolished. There is no formal lender-of-last resort facility. The central bank has provided such credit on an ad hoc basis to state-owned banks. Banks may also acquire refinance credit at a credit auction if they comply with the conditions for participation. | Credit auction: Open outcry auctions are conducted at Baku Interbank Currency Exchange (BICEX). Only banks that meet prudential regulations are allowed to participate. Substantial improvement in information dissemination and transparency during 1997 may help develop auctions in the near future. Since 1997, all refinance credit has been allocated through credit auctions, whose frequency was increased to weekly in 1998. A new draft regulation contains provisions requiring partial collateralization. The supply of credit is adjusted dynamically as the auction proceeds, but amounts sold are usually consistent with the central bank’s credit policies. Auctions are held bimonthly with maturities varying from 3 to 180 days, although, in practice, only 180-day credits have faced a significant demand. | Foreign exchange sales at the BICEX are also used as a monetary instrument. |
| Belarus | Differentiated ratios ranging from 5 percent to 21 percent (decreasing with the holding period) apply to domestic and foreign currency denominated bank deposits of up to one year, and may be fulfilled in either currency. Ratios on deposits of up to 90 days were raised in May 1997, and again in September 1997, while deposits of more than one year were exempted in May 1997. If over 20 (30) percent of banks’ resources, excluding those provided by the National Bank of Belarus, are placed in investment credits, the ratio on deposits of over one month are reduced by 25 (50) percent. Since September 1997, banks may meet a portion of the requirement by purchasing government securities at primary placement. There is no averaging of reserves. Only reserve requirements on domestic currency deposits are remunerated at 12 percent, (with the exception of the Belarusbank, for which reserve requirements on domestic currency deposits are remunerated at 50 percent of the refinance rate, and on freely convertible currency at 50 percent of LIBOR). | Directed credit Was the main channel of bank refinancing in 1997. Subsidized rates below the National Bank of Belarus (NBB) refinance rate apply. Overdraft facility: Permitted for a certain number of banks; limits set quarterly. Penalty rate of 3 times the refinance rate. An overdraft may be permitted for no more than 2 consecutive days, after which the NBB can suspend operations on the correspondent account. Effective January 1, 1998 overdrafts on correspondent accounts are prohibited. | Credit auction: Credit auctions with government securities as collateral have been held since October 1997. The maturity of issued credits is 7-12 days. The central bank conducts auctions as needed. There were few auctions in 1996 and 1997 due to the emphasis on directed credit. Central bank short-term obligations: Short-term obligations are issued for banks through auctions and for central banks of foreign states without holding auctions. Central bank bills: The bank has auctioned its own bills since July 1997. Central bank bills are sold to banks on an individual basis. The interest rate is set by the central bank at the level of the base refinancing rate. Banks’ deposits with the NBB: Various terms; liquidity management purpose. Deposits are accepted based on banks’ applications. Interest rates are differentiated based on terms of the deposits. Secondary market for treasury bills: The central bank has been purchasing and selling treasury bills in growing amounts. Operations are conducted on the over-the-counter and exchange markets. Emphasis is on a shift of all operations to the exchange market. Repo operations: Conducted in significant amounts on an individual basis and an auction basis during periods of liquidity shortages. Swap operations: Conducted in significant amounts on an individual basis for purposes of supporting liquidity of banks. | |
| Estonia | There is a uniform reserve ratio of 10 percent, including domestic, foreign currency deposits, non-resident deposits (but excluding credit from foreign banks), and securities (but excluding subordinated debt). Eligible assets include deposits at the Bank of Estonia (BOE) and vault cash (cash can be no more than 40 percent of required reserves). Reserves on foreign currency deposits are to be maintained in domestic currency. There is a four-week maintenance period, and reserves are based on the average of deposit liabilities on the 10th, 20th, and the end of the preceding month. Reserve holdings are averaged, with a penalty rate of 20 percent (15 percent until October 1997) a year on the deficiency. Banks must keep at least 40 percent (20 percent until October 1997) of required reserves balance daily or be subject to penalty. Only excess reserves are remunerated. To enhance liquidity buffers and support the reduction of credit growth in November 1997, the central bank introduced an additional requirement for banks’ reserve holdings at the central bank through the establishment of a temporary compulsory monthly minimum on the banks’ balances in excess of 3 percent over the reserve requirement base in December 1997. (Previously the rate was 2 percent). | The extension of central bank credit to commercial banks is limited to a portion of the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. In this context, the central bank has provided emergency credit to commercial banks. The central bank introduced deposits with the central bank in the second half of 1996. It pays the commercial banks a rate equal to the discount rate of the Deutsche Bundesbank, on deposits exceeding the reserve requirements, including the temporary additional requirement. | Certificates of deposit: Issued for market development, rather than monetary management, through monthly auctions with sealed bids. Interest rate commission sets upper and lower bounds on accepted bids and decides on volume offered, which is small. December 1996 and January 1997 auctions failed because of lack of interest on the part of the banks. Interest remained very low during 1997. Secondary market: For CDs exists through electronic trading on the BOE depository system, with same-day settlement. The central bank stands ready to enter into repos of CDs. | |
| Georgia | The uniform reserve ratio was reduced to 12 percent from 15 percent in late August 1997. There was virtually full compliance in 1997; foreign currency reserves are being held in domestic currency. Reserves are not averaged, and balances may be used to collateralize borrowing at the auction. Reserves are unremunerated. | Overdraft facility: As of September 1994, banks’ automatic access to overdrafts was eliminated. Lombard facility: Introduced in August 1997. | (Interbank) credit auction: Open outcry method used; National Bank of Georgia can exclude banks not in compliance with prudential regulations. Up to 90 percent of a bank’s reserve requirement may be used to collateralize borrowing at the auction (an increase from 75 percent in June 1996); the scale of operations, while small, is increasing. The auction deals with multiple maturities; central bank intervention is designed mainly to foster the development of the interbank market rather than to attain monetary policy objectives, but the central bank has borrowed in the market to manage liquidity. Primary market: Issues of treasury bills began in August 1997. | Since December 1994, the central bank has used foreign exchange operations to moderate the monetary impact of its lending to the government. |
| Kazakhstan | The uniform ratio on domestic and foreign exchange deposits has been gradually lowered to 10 percent effective October 1997. The portion due on foreign currency deposits may be held in foreign currency. Reserve holdings are averaged. Remuneration of required reserves was eliminated as of October 1997. A penalty rate for noncompliance defines the maximum interest rate in the interbank market. Eligible assets for required reserves include vault cash, which is not remunerated. | Lombard facility: Introduced in September 1995 with treasury bills as collateral. The interest rate is currently set at a margin over the market rate. The maturity of the loan must be within one month. The Lombard facility has been little used given the existence of alternate arrangements for liquidity support. Overnight credit mechanism: Created in March 1997 at a rate above that of the interbank market. Extended credit: The National Bank of Kazakhstan grants extended credit (more than one month) collateralized by government securities, foreign currency, or gold. | Centralized credit auctions: Significantly reduced in 1996. The regional credit auctions, introduced in June 1994, were phased out by January 1996. Central bank securities with a maturity between 7 and 90 days, which were first introduced in mid-1995, were used on an ad hoc basis in 1996 to absorb liquidity. Primary market for treasury bills is not used for monetary management. The Technical Committee of Monetary and Exchange Rate Policy meets every Friday morning to discuss recent developments, based on an information package. It makes recommendations for the coming week, which are presented to management Friday afternoon. Management then issues guidelines for the use of various instruments. The guidelines can be amended during the week as necessary. Secondary market for treasury bills has recently developed, with the NBK increasingly purchasing and selling, including through repurchase agreements and reverse repurchase agreements. | The central bank’s operations in foreign exchange and precious metals have on several occasions been used as monetary instruments. |
| Kyrgyz Republic | The uniform ratio rate was increased to 15 percent in December 1996, then to 20 percent on January 1, 1997. This rate applies to banks’ domestic and foreign currency denominated deposit liabilities. The reserve requirement must be held in domestic currency, and since March 1995 banks have been able to use cash in vault to meet the requirement. Effective April 1997, foreign exchange cash in vault can no longer be counted toward meeting reserve requirements. The requirement is based on the monthly average of banks’ deposits with monthly maintenance period on average. As of April 1997, differentiated remuneration rates are computed based on each bank’s deposit rate, and penalties of 1.4 times the National Bank of the Kyrgyz Republic’s average monthly refinance rate for the report month apply in case of noncompliance, which has declined to some extent in 1997 (20 cases in the period January-July 1997, some of which were granted waivers by the NB). | Lombard facility: Redesigned in January 1997 so that the collateral requirement is now 100 percent, up from 50 percent. Collateral can be in the form of three-month treasury bills, foreign exchange, or precious metals. Maturity of credit is from 7 to 14 days. Interest rates are currently 1.2 times the central bank’s refinance rate. The facility has been used four times in the period January to July 1997. Emergency credit facility: Introduced in November 1994, but was phased out in late 1996 for problem banks. | Credit auctions: abolished in December 1996. Primary market for treasury bills: Until late 1994, treasury bills served purely for monetary purposes. Now auction volume and timing is determined by the Ministry of Finance based on recommendations by the central bank. Weekly auctions are held. Secondary market: Effective mid-1997, the central bank began conducting repos for liquidity management, securitized by government debt (usually six months maturities). Operations are carried out daily. | The central bank’s foreign exchange operations: Since January 1, 1998 weekly auctions have been held. Foreign exchange operations are partly used as a monetary instrument. |
| Latvia | Since July 1993, a uniform reserve ratio of 8 percent applies to banks’ domestic and foreign currency denominated deposit liabilities of the preceding month, measured as of balances on the 7th, 15th, and last day of the month. Since September 1994, banks have been allowed to hold a maximum of 50 percent of their required reserves In vault cash. The remainder is held in non-interest-earning deposits with averaging of reserves. All the reserves are held in domestic currency. In case of noncompliance, banks pay a penalty of two and a half times the deficiency. | Lombard facility: Requires treasury bills as collateral. Rates on this facility are set at margins above the refinance rate as follows: 3 percent for 1 to 7-day loans, 5 percent for 8 to 14-day loans, and 7 percent for 15 days or more. Notification to draw on this facility has to be made before noon at the latest on the day of the drawing. Most Bank of Latvia (BOL) credit is now in the form of repos, as rates on such credits are guided by treasury bill rates, while the refinance rate has been higher than treasury bill rates. Automatic Lombard (overdraft) facility: Introduced in 1995 to help banks cover end-of-day clearing imbalances, for which treasury bills are required as collateral. Credit is extended on an overnight basis to banks that have signed collateral agreements. Banks are allowed to borrow up to 80 percent of the value of the collateral. The interest rate is 3 percent above the refinance rate. Automatic deposit facility: Introduced in 1995 (one-month deposits at the central bank at a fixed rate). Extraordinary financing facility: Introduced in 1995 for banks in serious difficulties. The facility has no ceiling, and financing is provided for up to 30 days. No collateral is required. | Repo auctions: Replaced short-term credit auctions. Repo auctions are held every day, offering 7-, 28-, and 90-day loans. Treasury-bills are used as collateral. Treasury bill secondary window: Established in 1994. The central bank quotes bid/offer prices daily based on results of the previous auction. A program ceiling applies to central bank purchases. Reverse repos: Introduced in May 1996. Commercial banks can offer to buy treasury bills for up to two weeks at the central bank secondary market rates. There has been little use of this instrument to date. | Foreign exchange operations: Have been the main monetary policy instrument since February 1994, with the objective of maintaining the exchange rate at its peg to the SDR. |
| Lithuania | The reserve ratio of 10 percent applies to commercial banks’ domestic and foreign currency deposit liabilities, except deposit liabilities with a contractual maturity of less than one year. Effective January 13, 1998, nonresidents will no longer be exempt; the reserve ratio of 5 percent will be raised by 1 percentage point a month so that by July 13, 1998 the reserve ratio will have reached 10 percent. Reserves can be only met by deposits with the central bank; averaging of reserves is allowed for deposits in litas but not for foreign exchange. In case of noncompliance, banks pay a penalty rate of one and a half times the previous month’s interbank rate for shortfalls of up to 20 percent of the required reserves; for shortfalls in excess of 20 percent, the fine is two times the overnight rate. Penalty on deficiencies in foreign exchange is 0.2 percent per day. In March 1996, the Bank of Lithuania (BOL) suspended the penalties for reserve shortfalls, and in May 1996 reduced the reserve requirement ratio from 10 percent to 5 percent in response to the liquidity crisis. The authorities restored the level of bank reserves gradually, raising it by 1 percentage point each quarter, starting in September 1996. The level currently stands at 10 percent. Penalties for reserve shortfalls have been reintroduced since June 1996. | Extension of central bank credit to commercial banks is limited to the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. In this context, the BOL has provided emergency credit to commercial banks on a very limited scale. | Repurchase operations in treasury bills were introduced by the BOL in the second quarter of 1997. Multiple-rate auctions Deposit auctions: Introduced in the second quarter of 1997 and used on an ad hoc basis. | |
| Moldova | A uniform reserve ratio has been in force since December 1994. In late 1995, the ratio was lowered from 12 percent to 8 percent. The ratio applies to commercial banks’ domestic and foreign currency deposits where deposits are averaged over the reserve maintenance period. Required reserves above 5 percent are remunerated at a rate equal to the inflation rate; and banks meet the reserve requirement on average. Foreign currency deposits are also subject to an 8 percent reserve ratio, but this may be satisfied by holding deposits abroad. As of February 1, 1997, domestic currency denominated vault cash was made eligible as a reserve asset (up to 2 percent of total requirements), and reserves for foreign currency deposits have to be maintained in domestic currency. | Lombard facility: Regulations were approved in November 1995; the first Lombard credit was extended in April 1996; short-term central bank credit was originally extended at a highly punitive interest rate that deterred banks’ use of this facility. The Lombard rate was lowered in 1997 and established at the level of the 28-day treasury bill discount rate, set at the last auction, plus a 5 percent margin, and the volume of transactions has expanded considerably. Lombard operations have been structured in the form of repurchase agreements of government securities because this structure gives the National Bank of Moldova clearer title to the collateral in the event of a bank default. | Credit auctions: In November 1996, all remaining restrictions on the access to credit auctions were eliminated, and access to auctions was limited only for prudential reasons or lack of collateral. Banks can acquire central bank credit up to 25 percent of their liabilities. As of May 1997, the share of auctioned credit to central bank’s total credit extended to banks was 90 percent. Interest rates are not sensitive to seasonal factors or the size of the offer, as some of the auctioned credit does not differ substantially from directed credit. Single-price auctions for primary sales of government securities are held on a weekly basis with no minimum rate. Credit auctions are held twice a month; the maturity of auctioned credit will be gradually shortened to 30 days. A transition toward a multiple price auction in 1998 is under review. Open market operations: These operations began in early 1997 and operate on a regular schedule; they are expected to completely replace credit auctions by the end of 1998. | |
| Russia | Reserve requirements are differentiated by type of deposits and currency. On May 1, 1997, they were reduced from 16 percent to 14 percent on ruble deposits of less than 30 days; from 13 percent to 11 percent on ruble deposits of 30 to 90 days; and from 10 percent to 8 percent on ruble deposits of more than 90 days. Furthermore, reserve requirements on foreign currency deposits were increased from 5 percent to 6 percent. For greater uniformity, the savings bank is now subject to a 9.5 percent reserve requirement on household deposits and has established the same reserve requirement for non-household and foreign currency deposits as other banks. In November 1997, the requirement on foreign currency deposits was raised from 6 percent to 9 percent; and in February 1998, it was further raised to 11 percent. Reserve compliance has improved, arising from regulations allowing the Central Bank of Russia to unilaterally transfer balances from correspondent to reserve accounts for delinquent banks. Reserve averaging is allowed, but is very restrictive, with a prescribed floor of 95 percent but only from day 5 and 25 of each month. The reserves are unremunerated. | Directed credit: The central bank is no longer providing direct credit through nonmarket means. Overdraft: There are two settlement facilities. The first, through end-of-day repos, provides two-day settlement funds for primary dealers on the securities market. The second, a general settlement over banks’ correspondent accounts, is provided on an uncollateralized basis to selected banks. Both are offered at a penalty rate of 1.3 times the refinance rate. Lombard facility: The central bank introduced a Lombard facility in 1996. The facility provides 7-, 14-, and 28-day credit, on the basis of predeposited collateral. | Credit auctions: Not used since September 1996. Deposit facility: Introduced in 1995, and was used on an ad hoc basis, available to Moscow-based primary dealers for overnight, two- and seven-day terms. The deposit facility was recently modified from an auction to a fixed-price offer. Primary market for treasury bills: The central bank manages auctions of treasury bills. Secondary market for treasury bills: The central bank actively intervenes, buying and selling treasury bills to manage yields. The central bank purchases treasury-bills from the screen-based secondary market at MICEX. Repo operations: Repo operations are conducted with primary dealers on treasury bills and federal loan bonds, twice a day. | Foreign exchange operations: Purchases are used to provide liquidity to the market on occasion, but are primarily used for exchange rate management. |
| Tajikistan | As of January 1997, uniform 20 percent ratio applies to all deposits. Penalty for noncompliance is 5 percent of the deficient amount. | The National Bank of Tajikistan operates a standing refinance window. The maturity of refinance credit varies according to type of project and can be as long as two years. The central bank charges the refinance rate, which since December 1997 has been set at the rate of the credit auction plus 0.5 percent per month. Penalty for overdue loans is five times the refinance rate. Directed credits were abolished by presidential decree in July 1997. | Credit auctions: Introduced at the end of 1997. The auction format was changed in February 1998 to the multiple-price format. | The central bank’s foreign exchange operations have on occasion been used for short-term liquidity management. Limits on cash withdrawals for households were eliminated in February 1987. |
| Turkmenistan | Since January 1996, the uniform reserve ratio on all deposit liabilities including foreign currency deposits (with the latter exempted in the case of one bank) has been 11 percent; there is a weekly maintenance period. Reserves must be held at the central bank. Since September 1996, 30 percent of vault cash is allowed against reserve requirements. The penalty rate is 0.2 percent of the shortfall daily. | Central bank credit: In 1997, the central bank provided refinance credit to commercial banks at the refinance rate. In addition, directed credits were again issued by presidential decree at rates below the Central Bank of Turkmenistan refinance rate to selected industries and agriculture. Auxiliary credit facility: Introduced in 1996 to provide banks with short-term credits at a penalty rate that is linked to the central bank refinance interest rate so that overdrafts can be avoided. These credits are available at a penalty rate of 1.2 times the refinance rate, for a maximum of seven days only. Unauthorized overdrafts are charged 1.7 times the refinance rate. | Credit auction: Auctions that were conducted regularly in 1996 to determine the refinance interest rate were suspended in March 1997 to avoid excessive liquidity expansion. The auction format varies, but the American auction is commonly used. | Foreign exchange auctions are conducted as weekly auctions, but are not used for monetary policy purposes. |
| Ukraine | From December 1, 1997, a uniform rate of 15 percent has been applied to all domestic and foreign currency deposits. Banks are permitted to use treasury bills to satisfy the increase in reserve requirement from the previous rate of 11 percent. Up to 10 percent of vault cash can be used to cover the reserve requirement. The requirement held in domestic currency is based on contemporaneous reserve accounting, averaged over each 10-day period. The penalty rate of twice the refinance rate in case of shortfalls applies to reserves not meeting the above requirements. Reserves are unremunerated. | Lombard facility: Introduced in December 1995. It currently provides fixed-term 10-day advances against treasury bills—the only collateral accepted. The facility provides an interest rate above the refinance rate or the current rate for the securities. There are no quotas, but access is limited to banks with no overdue debt to the National Bank of Ukraine and complying with its regulations. | Targeted credit auctions: Phased out in 1996; authorities reported no directed credit operations during 1997. General credit auctions: The collateral required for all auctions can be in the form of treasury bills and municipal securities. Held as multiple-price auctions with a minimum interest rate (refinance rate). Repurchase agreements: Conducted between the central bank and commercial banks are increasingly used to manage banking system liquidity. | The central bank’s foreign exchange operations were conducted on both the auction market and interbank foreign exchange market. There is increasing coordination between monetary/credit operations and foreign exchange operations. |
| Uzbekistan | The reserve ratio on sum deposits decreased from 30 percent to 25 percent effective June 1996 (10 percent for deposits of more than three years). At the same time, the regulations changed to allow vault cash to count toward fulfilling the requirement. No reserve requirement is imposed on foreign currency deposits. Reserves are unremunerated, and there is no averaging. | Directed credit: The Central Bank of Uzbekistan has not extended credit to banks at posted rates since the second quarter of 1995. Directed credit is now being provided through the budget. The central bank stands ready to repurchase its certificates of deposit after they have run for at least two weeks, at a rate to be determined on a case-by-case basis. | Credit auction: uses an open outcry method. Banks must comply with prudential regulations and norms to participate in these auctions. Credits are uncollateralized. The scale of operations is growing. Certificate of deposit auctions: conducted using sealed bid. The central bank decides what the cutoff rate and volumes will be. The importance of the interbank market is declining as the treasury bill market becomes more active. Primary market for treasury bills: Is in place. The central bank conducts open market operations (including repurchase agreements) in the secondary market. | Limits on cash withdrawals have been eliminated. Foreign exchange purchases are used to provide liquidity to the market. |
Table 8.3.
Sources: Country authorities; and IMF.
Instruments and Operating Arrangements, 1997
| Reserve Requirements | Standing & Nonmarket-Based Discretionary Facilities | Market Operations | Other Instruments | |
|---|---|---|---|---|
| Armenia | Differentiated reserve requirements by maturity were introduced in May 1996. Unified reserve requirements at 8 percent were introduced by decree in early January 1997 to take effect from August 1997. From June 1997, cash in banks’ vaults will be excluded from the reserve requirement calculation. Since August 1997, at least 50 percent of the requirement on foreign-denominated deposits must be met in foreign currency whereas before, the requirement was up to 100 percent. Reserve balances are averaged over a two-week period, with a one-day lag. | Overdraft facility: No longer operational. Directed credit: Abolished in early 1995. Lombard facility: Credit provided for up to seven days, with a penalty interest rate of 1.3 times the refinance rate. Systemic credit: Uncollateralized credit is granted for up to one year, at somewhat concessional rates currently (inflation plus 20 percent). At least 30 percent of funds must be allocated to government securities, and 50 percent in interbank loans and commercial bank deposits. | Credit auction: No longer operational. Central bank auctioned deposits: Short-term Central Bank of Armenia deposits, which initially had 14- and 28-day terms, were introduced in September 1996. Outside auctions as a form of standing facility were also available. The central bank initially capped interest rates in auctions at well below treasury bill rates, but in December 1996 allowed auction rates to rise substantially. An auction of government securities held off-balance sheet by the central bank as collateral of the government credit line was held during the summer of 1997. The central bank signed a contract with the government to securitize the credit line in early 1998. The off-balance sheet treasury bills were auctioned alongside normal new issue bills in the treasury bill auction. Repos and reverse repos: These instruments were introduced on a very small scale in March 1996; they were then reintroduced more actively in early 1998 using the treasury bonds acquired by the central bank in the securitization of credit to government. | Central bank foreign exchange operations: Interventions now solely in the interbank market. In 1996 and 1997, the central bank used foreign currency sales as a main domestic monetary policy instrument, rather than orienting toward an exchange rate target, as the exchange rate was allowed to float more freely. |
| Azerbaijan | Reserve requirements were unified at 12 percent in February 1997 (up from 8 percent and 6 percent on manat and foreign exchange-denominated deposits, respectively). Banks must meet requirements on manat deposits in manats, and on foreign currency deposits in foreign currency. Requirements are calculated on the basis of daily average deposit balances. There is no averaging of reserve holdings. | Overdraft facility: In late 1994, all automatic overdraft facilities were abolished. There is no formal lender-of-last resort facility. The central bank has provided such credit on an ad hoc basis to state-owned banks. Banks may also acquire refinance credit at a credit auction if they comply with the conditions for participation. | Credit auction: Open outcry auctions are conducted at Baku Interbank Currency Exchange (BICEX). Only banks that meet prudential regulations are allowed to participate. Substantial improvement in information dissemination and transparency during 1997 may help develop auctions in the near future. Since 1997, all refinance credit has been allocated through credit auctions, whose frequency was increased to weekly in 1998. A new draft regulation contains provisions requiring partial collateralization. The supply of credit is adjusted dynamically as the auction proceeds, but amounts sold are usually consistent with the central bank’s credit policies. Auctions are held bimonthly with maturities varying from 3 to 180 days, although, in practice, only 180-day credits have faced a significant demand. | Foreign exchange sales at the BICEX are also used as a monetary instrument. |
| Belarus | Differentiated ratios ranging from 5 percent to 21 percent (decreasing with the holding period) apply to domestic and foreign currency denominated bank deposits of up to one year, and may be fulfilled in either currency. Ratios on deposits of up to 90 days were raised in May 1997, and again in September 1997, while deposits of more than one year were exempted in May 1997. If over 20 (30) percent of banks’ resources, excluding those provided by the National Bank of Belarus, are placed in investment credits, the ratio on deposits of over one month are reduced by 25 (50) percent. Since September 1997, banks may meet a portion of the requirement by purchasing government securities at primary placement. There is no averaging of reserves. Only reserve requirements on domestic currency deposits are remunerated at 12 percent, (with the exception of the Belarusbank, for which reserve requirements on domestic currency deposits are remunerated at 50 percent of the refinance rate, and on freely convertible currency at 50 percent of LIBOR). | Directed credit Was the main channel of bank refinancing in 1997. Subsidized rates below the National Bank of Belarus (NBB) refinance rate apply. Overdraft facility: Permitted for a certain number of banks; limits set quarterly. Penalty rate of 3 times the refinance rate. An overdraft may be permitted for no more than 2 consecutive days, after which the NBB can suspend operations on the correspondent account. Effective January 1, 1998 overdrafts on correspondent accounts are prohibited. | Credit auction: Credit auctions with government securities as collateral have been held since October 1997. The maturity of issued credits is 7-12 days. The central bank conducts auctions as needed. There were few auctions in 1996 and 1997 due to the emphasis on directed credit. Central bank short-term obligations: Short-term obligations are issued for banks through auctions and for central banks of foreign states without holding auctions. Central bank bills: The bank has auctioned its own bills since July 1997. Central bank bills are sold to banks on an individual basis. The interest rate is set by the central bank at the level of the base refinancing rate. Banks’ deposits with the NBB: Various terms; liquidity management purpose. Deposits are accepted based on banks’ applications. Interest rates are differentiated based on terms of the deposits. Secondary market for treasury bills: The central bank has been purchasing and selling treasury bills in growing amounts. Operations are conducted on the over-the-counter and exchange markets. Emphasis is on a shift of all operations to the exchange market. Repo operations: Conducted in significant amounts on an individual basis and an auction basis during periods of liquidity shortages. Swap operations: Conducted in significant amounts on an individual basis for purposes of supporting liquidity of banks. | |
| Estonia | There is a uniform reserve ratio of 10 percent, including domestic, foreign currency deposits, non-resident deposits (but excluding credit from foreign banks), and securities (but excluding subordinated debt). Eligible assets include deposits at the Bank of Estonia (BOE) and vault cash (cash can be no more than 40 percent of required reserves). Reserves on foreign currency deposits are to be maintained in domestic currency. There is a four-week maintenance period, and reserves are based on the average of deposit liabilities on the 10th, 20th, and the end of the preceding month. Reserve holdings are averaged, with a penalty rate of 20 percent (15 percent until October 1997) a year on the deficiency. Banks must keep at least 40 percent (20 percent until October 1997) of required reserves balance daily or be subject to penalty. Only excess reserves are remunerated. To enhance liquidity buffers and support the reduction of credit growth in November 1997, the central bank introduced an additional requirement for banks’ reserve holdings at the central bank through the establishment of a temporary compulsory monthly minimum on the banks’ balances in excess of 3 percent over the reserve requirement base in December 1997. (Previously the rate was 2 percent). | The extension of central bank credit to commercial banks is limited to a portion of the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. In this context, the central bank has provided emergency credit to commercial banks. The central bank introduced deposits with the central bank in the second half of 1996. It pays the commercial banks a rate equal to the discount rate of the Deutsche Bundesbank, on deposits exceeding the reserve requirements, including the temporary additional requirement. | Certificates of deposit: Issued for market development, rather than monetary management, through monthly auctions with sealed bids. Interest rate commission sets upper and lower bounds on accepted bids and decides on volume offered, which is small. December 1996 and January 1997 auctions failed because of lack of interest on the part of the banks. Interest remained very low during 1997. Secondary market: For CDs exists through electronic trading on the BOE depository system, with same-day settlement. The central bank stands ready to enter into repos of CDs. | |
| Georgia | The uniform reserve ratio was reduced to 12 percent from 15 percent in late August 1997. There was virtually full compliance in 1997; foreign currency reserves are being held in domestic currency. Reserves are not averaged, and balances may be used to collateralize borrowing at the auction. Reserves are unremunerated. | Overdraft facility: As of September 1994, banks’ automatic access to overdrafts was eliminated. Lombard facility: Introduced in August 1997. | (Interbank) credit auction: Open outcry method used; National Bank of Georgia can exclude banks not in compliance with prudential regulations. Up to 90 percent of a bank’s reserve requirement may be used to collateralize borrowing at the auction (an increase from 75 percent in June 1996); the scale of operations, while small, is increasing. The auction deals with multiple maturities; central bank intervention is designed mainly to foster the development of the interbank market rather than to attain monetary policy objectives, but the central bank has borrowed in the market to manage liquidity. Primary market: Issues of treasury bills began in August 1997. | Since December 1994, the central bank has used foreign exchange operations to moderate the monetary impact of its lending to the government. |
| Kazakhstan | The uniform ratio on domestic and foreign exchange deposits has been gradually lowered to 10 percent effective October 1997. The portion due on foreign currency deposits may be held in foreign currency. Reserve holdings are averaged. Remuneration of required reserves was eliminated as of October 1997. A penalty rate for noncompliance defines the maximum interest rate in the interbank market. Eligible assets for required reserves include vault cash, which is not remunerated. | Lombard facility: Introduced in September 1995 with treasury bills as collateral. The interest rate is currently set at a margin over the market rate. The maturity of the loan must be within one month. The Lombard facility has been little used given the existence of alternate arrangements for liquidity support. Overnight credit mechanism: Created in March 1997 at a rate above that of the interbank market. Extended credit: The National Bank of Kazakhstan grants extended credit (more than one month) collateralized by government securities, foreign currency, or gold. | Centralized credit auctions: Significantly reduced in 1996. The regional credit auctions, introduced in June 1994, were phased out by January 1996. Central bank securities with a maturity between 7 and 90 days, which were first introduced in mid-1995, were used on an ad hoc basis in 1996 to absorb liquidity. Primary market for treasury bills is not used for monetary management. The Technical Committee of Monetary and Exchange Rate Policy meets every Friday morning to discuss recent developments, based on an information package. It makes recommendations for the coming week, which are presented to management Friday afternoon. Management then issues guidelines for the use of various instruments. The guidelines can be amended during the week as necessary. Secondary market for treasury bills has recently developed, with the NBK increasingly purchasing and selling, including through repurchase agreements and reverse repurchase agreements. | The central bank’s operations in foreign exchange and precious metals have on several occasions been used as monetary instruments. |
| Kyrgyz Republic | The uniform ratio rate was increased to 15 percent in December 1996, then to 20 percent on January 1, 1997. This rate applies to banks’ domestic and foreign currency denominated deposit liabilities. The reserve requirement must be held in domestic currency, and since March 1995 banks have been able to use cash in vault to meet the requirement. Effective April 1997, foreign exchange cash in vault can no longer be counted toward meeting reserve requirements. The requirement is based on the monthly average of banks’ deposits with monthly maintenance period on average. As of April 1997, differentiated remuneration rates are computed based on each bank’s deposit rate, and penalties of 1.4 times the National Bank of the Kyrgyz Republic’s average monthly refinance rate for the report month apply in case of noncompliance, which has declined to some extent in 1997 (20 cases in the period January-July 1997, some of which were granted waivers by the NB). | Lombard facility: Redesigned in January 1997 so that the collateral requirement is now 100 percent, up from 50 percent. Collateral can be in the form of three-month treasury bills, foreign exchange, or precious metals. Maturity of credit is from 7 to 14 days. Interest rates are currently 1.2 times the central bank’s refinance rate. The facility has been used four times in the period January to July 1997. Emergency credit facility: Introduced in November 1994, but was phased out in late 1996 for problem banks. | Credit auctions: abolished in December 1996. Primary market for treasury bills: Until late 1994, treasury bills served purely for monetary purposes. Now auction volume and timing is determined by the Ministry of Finance based on recommendations by the central bank. Weekly auctions are held. Secondary market: Effective mid-1997, the central bank began conducting repos for liquidity management, securitized by government debt (usually six months maturities). Operations are carried out daily. | The central bank’s foreign exchange operations: Since January 1, 1998 weekly auctions have been held. Foreign exchange operations are partly used as a monetary instrument. |
| Latvia | Since July 1993, a uniform reserve ratio of 8 percent applies to banks’ domestic and foreign currency denominated deposit liabilities of the preceding month, measured as of balances on the 7th, 15th, and last day of the month. Since September 1994, banks have been allowed to hold a maximum of 50 percent of their required reserves In vault cash. The remainder is held in non-interest-earning deposits with averaging of reserves. All the reserves are held in domestic currency. In case of noncompliance, banks pay a penalty of two and a half times the deficiency. | Lombard facility: Requires treasury bills as collateral. Rates on this facility are set at margins above the refinance rate as follows: 3 percent for 1 to 7-day loans, 5 percent for 8 to 14-day loans, and 7 percent for 15 days or more. Notification to draw on this facility has to be made before noon at the latest on the day of the drawing. Most Bank of Latvia (BOL) credit is now in the form of repos, as rates on such credits are guided by treasury bill rates, while the refinance rate has been higher than treasury bill rates. Automatic Lombard (overdraft) facility: Introduced in 1995 to help banks cover end-of-day clearing imbalances, for which treasury bills are required as collateral. Credit is extended on an overnight basis to banks that have signed collateral agreements. Banks are allowed to borrow up to 80 percent of the value of the collateral. The interest rate is 3 percent above the refinance rate. Automatic deposit facility: Introduced in 1995 (one-month deposits at the central bank at a fixed rate). Extraordinary financing facility: Introduced in 1995 for banks in serious difficulties. The facility has no ceiling, and financing is provided for up to 30 days. No collateral is required. | Repo auctions: Replaced short-term credit auctions. Repo auctions are held every day, offering 7-, 28-, and 90-day loans. Treasury-bills are used as collateral. Treasury bill secondary window: Established in 1994. The central bank quotes bid/offer prices daily based on results of the previous auction. A program ceiling applies to central bank purchases. Reverse repos: Introduced in May 1996. Commercial banks can offer to buy treasury bills for up to two weeks at the central bank secondary market rates. There has been little use of this instrument to date. | Foreign exchange operations: Have been the main monetary policy instrument since February 1994, with the objective of maintaining the exchange rate at its peg to the SDR. |
| Lithuania | The reserve ratio of 10 percent applies to commercial banks’ domestic and foreign currency deposit liabilities, except deposit liabilities with a contractual maturity of less than one year. Effective January 13, 1998, nonresidents will no longer be exempt; the reserve ratio of 5 percent will be raised by 1 percentage point a month so that by July 13, 1998 the reserve ratio will have reached 10 percent. Reserves can be only met by deposits with the central bank; averaging of reserves is allowed for deposits in litas but not for foreign exchange. In case of noncompliance, banks pay a penalty rate of one and a half times the previous month’s interbank rate for shortfalls of up to 20 percent of the required reserves; for shortfalls in excess of 20 percent, the fine is two times the overnight rate. Penalty on deficiencies in foreign exchange is 0.2 percent per day. In March 1996, the Bank of Lithuania (BOL) suspended the penalties for reserve shortfalls, and in May 1996 reduced the reserve requirement ratio from 10 percent to 5 percent in response to the liquidity crisis. The authorities restored the level of bank reserves gradually, raising it by 1 percentage point each quarter, starting in September 1996. The level currently stands at 10 percent. Penalties for reserve shortfalls have been reintroduced since June 1996. | Extension of central bank credit to commercial banks is limited to the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. In this context, the BOL has provided emergency credit to commercial banks on a very limited scale. | Repurchase operations in treasury bills were introduced by the BOL in the second quarter of 1997. Multiple-rate auctions Deposit auctions: Introduced in the second quarter of 1997 and used on an ad hoc basis. | |
| Moldova | A uniform reserve ratio has been in force since December 1994. In late 1995, the ratio was lowered from 12 percent to 8 percent. The ratio applies to commercial banks’ domestic and foreign currency deposits where deposits are averaged over the reserve maintenance period. Required reserves above 5 percent are remunerated at a rate equal to the inflation rate; and banks meet the reserve requirement on average. Foreign currency deposits are also subject to an 8 percent reserve ratio, but this may be satisfied by holding deposits abroad. As of February 1, 1997, domestic currency denominated vault cash was made eligible as a reserve asset (up to 2 percent of total requirements), and reserves for foreign currency deposits have to be maintained in domestic currency. | Lombard facility: Regulations were approved in November 1995; the first Lombard credit was extended in April 1996; short-term central bank credit was originally extended at a highly punitive interest rate that deterred banks’ use of this facility. The Lombard rate was lowered in 1997 and established at the level of the 28-day treasury bill discount rate, set at the last auction, plus a 5 percent margin, and the volume of transactions has expanded considerably. Lombard operations have been structured in the form of repurchase agreements of government securities because this structure gives the National Bank of Moldova clearer title to the collateral in the event of a bank default. | Credit auctions: In November 1996, all remaining restrictions on the access to credit auctions were eliminated, and access to auctions was limited only for prudential reasons or lack of collateral. Banks can acquire central bank credit up to 25 percent of their liabilities. As of May 1997, the share of auctioned credit to central bank’s total credit extended to banks was 90 percent. Interest rates are not sensitive to seasonal factors or the size of the offer, as some of the auctioned credit does not differ substantially from directed credit. Single-price auctions for primary sales of government securities are held on a weekly basis with no minimum rate. Credit auctions are held twice a month; the maturity of auctioned credit will be gradually shortened to 30 days. A transition toward a multiple price auction in 1998 is under review. Open market operations: These operations began in early 1997 and operate on a regular schedule; they are expected to completely replace credit auctions by the end of 1998. | |
| Russia | Reserve requirements are differentiated by type of deposits and currency. On May 1, 1997, they were reduced from 16 percent to 14 percent on ruble deposits of less than 30 days; from 13 percent to 11 percent on ruble deposits of 30 to 90 days; and from 10 percent to 8 percent on ruble deposits of more than 90 days. Furthermore, reserve requirements on foreign currency deposits were increased from 5 percent to 6 percent. For greater uniformity, the savings bank is now subject to a 9.5 percent reserve requirement on household deposits and has established the same reserve requirement for non-household and foreign currency deposits as other banks. In November 1997, the requirement on foreign currency deposits was raised from 6 percent to 9 percent; and in February 1998, it was further raised to 11 percent. Reserve compliance has improved, arising from regulations allowing the Central Bank of Russia to unilaterally transfer balances from correspondent to reserve accounts for delinquent banks. Reserve averaging is allowed, but is very restrictive, with a prescribed floor of 95 percent but only from day 5 and 25 of each month. The reserves are unremunerated. | Directed credit: The central bank is no longer providing direct credit through nonmarket means. Overdraft: There are two settlement facilities. The first, through end-of-day repos, provides two-day settlement funds for primary dealers on the securities market. The second, a general settlement over banks’ correspondent accounts, is provided on an uncollateralized basis to selected banks. Both are offered at a penalty rate of 1.3 times the refinance rate. Lombard facility: The central bank introduced a Lombard facility in 1996. The facility provides 7-, 14-, and 28-day credit, on the basis of predeposited collateral. | Credit auctions: Not used since September 1996. Deposit facility: Introduced in 1995, and was used on an ad hoc basis, available to Moscow-based primary dealers for overnight, two- and seven-day terms. The deposit facility was recently modified from an auction to a fixed-price offer. Primary market for treasury bills: The central bank manages auctions of treasury bills. Secondary market for treasury bills: The central bank actively intervenes, buying and selling treasury bills to manage yields. The central bank purchases treasury-bills from the screen-based secondary market at MICEX. Repo operations: Repo operations are conducted with primary dealers on treasury bills and federal loan bonds, twice a day. | Foreign exchange operations: Purchases are used to provide liquidity to the market on occasion, but are primarily used for exchange rate management. |
| Tajikistan | As of January 1997, uniform 20 percent ratio applies to all deposits. Penalty for noncompliance is 5 percent of the deficient amount. | The National Bank of Tajikistan operates a standing refinance window. The maturity of refinance credit varies according to type of project and can be as long as two years. The central bank charges the refinance rate, which since December 1997 has been set at the rate of the credit auction plus 0.5 percent per month. Penalty for overdue loans is five times the refinance rate. Directed credits were abolished by presidential decree in July 1997. | Credit auctions: Introduced at the end of 1997. The auction format was changed in February 1998 to the multiple-price format. | The central bank’s foreign exchange operations have on occasion been used for short-term liquidity management. Limits on cash withdrawals for households were eliminated in February 1987. |
| Turkmenistan | Since January 1996, the uniform reserve ratio on all deposit liabilities including foreign currency deposits (with the latter exempted in the case of one bank) has been 11 percent; there is a weekly maintenance period. Reserves must be held at the central bank. Since September 1996, 30 percent of vault cash is allowed against reserve requirements. The penalty rate is 0.2 percent of the shortfall daily. | Central bank credit: In 1997, the central bank provided refinance credit to commercial banks at the refinance rate. In addition, directed credits were again issued by presidential decree at rates below the Central Bank of Turkmenistan refinance rate to selected industries and agriculture. Auxiliary credit facility: Introduced in 1996 to provide banks with short-term credits at a penalty rate that is linked to the central bank refinance interest rate so that overdrafts can be avoided. These credits are available at a penalty rate of 1.2 times the refinance rate, for a maximum of seven days only. Unauthorized overdrafts are charged 1.7 times the refinance rate. | Credit auction: Auctions that were conducted regularly in 1996 to determine the refinance interest rate were suspended in March 1997 to avoid excessive liquidity expansion. The auction format varies, but the American auction is commonly used. | Foreign exchange auctions are conducted as weekly auctions, but are not used for monetary policy purposes. |
| Ukraine | From December 1, 1997, a uniform rate of 15 percent has been applied to all domestic and foreign currency deposits. Banks are permitted to use treasury bills to satisfy the increase in reserve requirement from the previous rate of 11 percent. Up to 10 percent of vault cash can be used to cover the reserve requirement. The requirement held in domestic currency is based on contemporaneous reserve accounting, averaged over each 10-day period. The penalty rate of twice the refinance rate in case of shortfalls applies to reserves not meeting the above requirements. Reserves are unremunerated. | Lombard facility: Introduced in December 1995. It currently provides fixed-term 10-day advances against treasury bills—the only collateral accepted. The facility provides an interest rate above the refinance rate or the current rate for the securities. There are no quotas, but access is limited to banks with no overdue debt to the National Bank of Ukraine and complying with its regulations. | Targeted credit auctions: Phased out in 1996; authorities reported no directed credit operations during 1997. General credit auctions: The collateral required for all auctions can be in the form of treasury bills and municipal securities. Held as multiple-price auctions with a minimum interest rate (refinance rate). Repurchase agreements: Conducted between the central bank and commercial banks are increasingly used to manage banking system liquidity. | The central bank’s foreign exchange operations were conducted on both the auction market and interbank foreign exchange market. There is increasing coordination between monetary/credit operations and foreign exchange operations. |
| Uzbekistan | The reserve ratio on sum deposits decreased from 30 percent to 25 percent effective June 1996 (10 percent for deposits of more than three years). At the same time, the regulations changed to allow vault cash to count toward fulfilling the requirement. No reserve requirement is imposed on foreign currency deposits. Reserves are unremunerated, and there is no averaging. | Directed credit: The Central Bank of Uzbekistan has not extended credit to banks at posted rates since the second quarter of 1995. Directed credit is now being provided through the budget. The central bank stands ready to repurchase its certificates of deposit after they have run for at least two weeks, at a rate to be determined on a case-by-case basis. | Credit auction: uses an open outcry method. Banks must comply with prudential regulations and norms to participate in these auctions. Credits are uncollateralized. The scale of operations is growing. Certificate of deposit auctions: conducted using sealed bid. The central bank decides what the cutoff rate and volumes will be. The importance of the interbank market is declining as the treasury bill market becomes more active. Primary market for treasury bills: Is in place. The central bank conducts open market operations (including repurchase agreements) in the secondary market. | Limits on cash withdrawals have been eliminated. Foreign exchange purchases are used to provide liquidity to the market. |
Table 8.4.Sources: Country authorities; and IMF.
Developments in Foreign Exchange, 1997
Table 8.4.
Sources: Country authorities; and IMF.
Developments in Foreign Exchange, 1997
| Exchange Rate Arrangements and Policy | Market Structure | Regulatory Framework | Central Bank Operations | |
|---|---|---|---|---|
| Armenia | Arrangement: independently floating. Outcome: After depreciating by 14 percent during the first five months of 1997, the exchange rate vis-à-vis the U.S. dollar stabilized and appreciated slightly in response to capital inflows and changes in economic conditions. Gross reserves increased to 3.1 months of imports by end-1997 compared to 2.2 months at end-1996. | The exchange rate is unified. The official rate is set daily by the central bank at the midpoint of previous day’s buying and selling rates in the interbank market. The role of foreign exchange auctions (daily auctions on the stock exchange) has essentially been eliminated. Interbank trading is expanding. Market procedures still need some improvement (reporting of foreign exchange transactions, dealers’ association, codes of conduct and settlement, procedures), and developments are under way in these areas. Foreign exchange bureaus now have brokerage activities, and the need for bank affiliation was lifted. | Article VIII status (May 1997): The current account is practically free of restrictions. There is no surrender requirement for repatriation requirement. There are practically no capital restrictions, but authorities retain the power to impose them. The open position limit is 40 percent, high in relation to international standards, and is applied only to long positions. Since March 1, 1998, short or long foreign exchange positions have been limited to 40 percent. In addition open positions on currencies other than Swiss francs and those included in ECU and SDR are limited to 10 percent. | Foreign exchange intervention is made exclusively through the interbank market, and is coordinated with monetary policy (often used as a monetary policy instrument). Reserve management is well-advanced. A broad set of investment guidelines has been established with an average maturity up to three months in high-quality institutions; derivatives are prohibited. The Investment Committee reviews decisions fortnightly with daily and weekly reports. Internal control and administration of the foreign exchange operations is well organized, and from late 1997 has been combined with domestic operations, with better coordination between back, middle, and front offices. |
| Azerbaijan | Arrangement: Independently floating. Outcome: The exchange rate of the manat continued gradually appreciating during 1997. Gross reserves increased from 2.0 months of imports in 1996 to 3.8 months in 1997. | The exchange rate is unified with the official/cash buying rate spread in the 1-4 percent range during most of 1996. The official exchange rate is set at daily foreign exchange auctions in the Baku International Currency Exchange (BICEX) with individuals allowed in 1997 to purchase foreign exchange for bona fide current account transactions. Auctions are transparent, but the settlement of transactions needs to be improved. In August 1997 the Azerbaijan National Bank lifted the prohibition on interbank market trading. Cash exchange takes place through licensed foreign exchange bureaus. Selling rate should not exceed 5 percent of official rate. | Has not yet achieved Article VIII status but under current plans will do so in the context of next Article IV consultation. Progress has been made in eliminating almost all restrictions on current account transactions. There is no surrender requirement. The repatriation requirement for enterprises that are current in tax payments was abolished in 1996. The restrictions on capital transactions seem enforced with a high degree of compliance. Open position limits are in place. | Foreign exchange intervention occurs through the auction system and the interbank foreign exchange market. It is used to smooth exchange rate movements, and is coordinated with monetary policy (sales are kept broadly consistent with the targeted growth of base money). Reserve management: The central bank is responsible for managing foreign exchange and gold reserves. The central bank board has formulated an official reserve management policy. Current practice is to keep virtually all reserves in U.S. dollar deposits in some of the world’s largest banks and a few central banks. Some, however, are held in a domestic commercial bank. |
| Belarus | Arrangement: Other managed floating. Outcome: During 1997 there was a smooth depreciation of exchange rate as a result of interventions on the exchange and use of restrictions on the buying of foreign currency. Grass reserves remained below one month of imports in 1996 and 1997. | Foreign currency is allocated predominantly for purchasing strategically important imports (for the most part energy resources). The exchange rate is determined in daily trading sessions on the Interbank Currency Exchange. The Interbank Currency Market legally operates, but in actuality restrictions on formation of exchange rates do not allow it to operate at full volume. On the over-the-counter market, the exchange rate for a transaction may not exceed the unified exchange rate of the National Bank of Belarus and may not be more than 2 percent beneath it. The difference between the official exchange rate and the exchange rate determined on the curb market was as much as 70-80 percent in the first quarter of 1998. Since December 1997 operations on the cash foreign currency market have been liberalized. | Belarus does not yet have Article VIII status. Remaining restrictions give rise to a multiple-currency practice. Surrender requirement for export proceeds was reduced to 30 percent in June 1997. There is a repatriation requirement. Capital account flows are strictly regulated by the central bank. There are limits on open foreign exchange positions for banks, but these apply to the difference of short-long open positions separately with regard to freely convertible currency and currencies with limited convertibility. | Foreign exchange intervention has been solely through the auction system. Coordination with monetary policy needs improvement. Reserve management is centralized at the central bank, which continues to deposit part of its foreign exchange reserves in domestic banks. Satisfactory guidelines with respect to currency distribution, acceptable instruments, and limits have been established. |
| Estonia | Arrangement: The kroon is pegged to the deutsche mark, which will be replaced by a peg to the euro with the advent of the European Monetary Union. Outcome: The currency board arrangement has been successfully maintained, and the exchange rate is stable. Gross reserves were at 1.9 months of imports for 1997 compared to 2.5 months in 1996. | The exchange rate was unified under the currency board Arrangement: Transactions in convertible currencies are freely handled by commercial banks which can quote their own exchange rates. | Estonia accepted Article VIII status in August 1994. There is full convertibility for all current and virtually all international capital account transactions. There are no repatriation or surrender requirements. Open position limits are in place: Exposure has been added to risks under capital adequacy regulations. There are no direct limits, except for currencies of non-OECD countries or for currencies of those countries that have not concluded agreements within the IMF’s General Arrangements to Borrow (GAB): exposure limited to 5 percent of capital (10 percent for Latvia and Lithuania). | Foreign exchange intervention was coordinated with monetary policy according to the currency board Arrangement: Reserve management: The central bank has a reserve cover in deutsche marks exceeding 130 percent. |
| Georgia | Arrangement Other managed floating. Outcome: The lari remained broadly stable against the U.S. dollar during 1997. The National Bank of Georgia was a net purchaser of foreign exchange in the second half of 1997 for the first time since the introduction of the lari in late 1995. Gross reserves have fallen to 2.5 months of imports in 1997 from 2.7 months of imports in 1996. | The exchange rate is unified, with the official rate set daily on the basis of the auction rate. Foreign exchange auctions are well-established, moving to daily frequency in January 1996. The interbank market accounts for about 40 percent of total transactions and is growing in part due to increased confidence among banks. Banks with good financial standing conduct half of their transactions in this market, which is cheaper than the Tbilisi Interbank Currency Exchange (TICEX), where an official fee is applied. A code of conduct is under preparation. Foreign exchange bureaus can buy and sell cash since 1993. | Georgia accepted Article VIII status in December 1996. The exchange system is free of restrictions on current and capital accounts, although capital flows are subject to a registration requirement for monitoring. There are no surrender or repatriation requirements. Open position limits are now strictly enforced and are backed by penalties of 0.1 percent per day. Limits were reduced to 20 percent for aggregate positions (from 25 percent) and to zero for individual positions (from 10 percent), effective December 1997. | Foreign exchange intervention through auctions in TICEX, and has been one of the main instruments of monetary policy and of exchange rate management, consistent with meeting reserve targets under the IMF program. Reserve management: The central bank is well advanced in managing reserves, and has established a reserve management committee. Investment is mainly in secure short-term deposits, with some diversification in treasury bills already started. Internal control and administration: The central bank has set up a dealing room separated from the back office. |
| Kazakhstan | Arrangement Managed floating. Outcome: The tenge has been stable in nominal terms during most of 1997. Gross reserves rose slightly to 3.2 months of imports in 1997 from 3.1 months in 1996. | The exchange rate is unified. Official exchange rate set weekly by the Technical Committee for Monetary and Exchange Policy based on the daily auction rate and interbank market rates, which differ only slightly from the rate of the foreign exchange bureaus. Interbank trading is developing well with market share representing 65 percent of total foreign exchange transactions during the period from January to September 1997, compared to 56 percent in 1996. A code of conduct for dealers was adopted in 1997, and the establishment of a dealers’ association is under discussion. The foreign exchange bureau market is fairly significant with 2,135 licenced foreign exchange bureaus. | Kazakhstan accepted Article VIII status in July 1996. There is no surrender requirement. Repatriation requirements remain unless a special license is issued by the National Bank of Kazakhstan with the approval of the ministry of finance (if the amount exceeds the equivalent of US$100,000) and the Strategic Planning and Reform Agency (if the amount exceeds the equivalent of US$10 million). Capital account transactions involving an outflow of capital from the republic (direct and portfolio investments abroad, and credits and loans to nonresidents for a period of more than 180 days) and carried out in foreign currency shall be licensed by the central bank. Capital inflows (direct and portfolio investments in Kazakhstan, and credits and loans received by residents for a period of more than 180 days) in excess of the equivalent of US$100,000 shall be subject to registration with the central bank. Open position limits of 30 percent of capital for individual currencies; and 50 percent for aggregate positions with daily reporting to the central bank required. Limits were not consistently observed. | Foreign exchange intervention has been mainly in the auction market. The central bank also intervenes in the interbank market, but less frequently, depending on exchange rate and timing. Reserve management: An investment committee was established and limits to risk exposure were adopted in 1997. Internal control and administration were strengthened by establishing a clear distinction between the back and front offices. |
| Kyrgyz Republic | Arrangement: Other managed floating. Outcome: Since May 1997 the som has remained broadly stable. Overall, it depreciated by 4.18 percent between January and October 1997. Gross reserves increased from 1.7 months of imports at the end of 1996 to 3.3 months at end-1997. | The exchange rate is unified. The official exchange rate is determined in twice-weekly foreign exchange auctions at the central bank. The method for holding the auctions was changed to a multiple-price mechanism in February 1998. The official rate of the central bank is the weighted average of the auction price. Turnover at The auction fell further in 1997 ($37 million from January to September 1997 compared to $97 million in 1996). Limited interbank trading (amounted to 39 percent of the total foreign exchange transactions from January to August 1997). | Kyrgyz Republic accepted Article VIII status in March 1995 with full capital and current account convertibility. There are no surrender or repatriation requirements. Open position limits are in place (15 percent and 30 percent on individual and aggregate currency positions respectively). | Foreign exchange intervention is through auctions, mainly the sale of donor funds, primarily for the purpose of limiting exchange rate fluctuations, and to adjust banking system liquidity. Reserves management: Investment Committee was established in 1994, guidelines for portfolio composition and permissible investments strengthened in 1997. Internal control and administration: Good progress has been made with clear separation of back and front offices. More back-office training is needed. |
| Latvia | Arrangement: The lats is pegged to the SDR. Outcome: The lats has adjusted slightly against the U.S. dollar. The authorities remained committed to the peg as a cornerstone of monetary policy. Gross reserves fell slightly to 3.0 months of imports in 1997. | The exchange rate is unified. The Bank of Latvia reviews domestic and international exchange markets on a daily basis, and announces daily buying and selling rates for the lats. Interbank trading is developing, with trading among commercial banks taking place through a telephone system. An informal dealers’ committee was set up in 1995. | Latvia accepted Article VIII status in June 1994. Current and capital account transactions have been fully liberalized. There are no surrender or repatriation requirements. Open position limits are 10 percent for each currency and 20 percent on aggregate. | Foreign exchange intervention is conducted in the interbank market. Reserves management is relatively well advanced with an investment committee meeting weekly. There has been a gradual move to active management of reserves. Internal control and administration has been strengthened with clearer distinction between front and back offices, and stronger market monitoring. |
| Lithuania | Arrangement: The litas is pegged to the U.S. dollar under a currency board Arrangement: In view of the integration into the EU, exit strategy from the currency board arrangement is envisaged. The Bank of Lithuania has adopted a three-stage monetary policy program from 1997 to 1999 in support of reorientation of the peg to the euro. Outcome: The litas has been stable against the dollar. Gross reserves increased to 2.9 months of imports. | The exchange rate was unified under the currency board Arrangement: Banks authorized to trade in foreign exchange are allowed to transact among themselves, as well as with residents and nonresidents. | Lithuania accepted Article VIII status in May 1994. There is full convertibility for all current and capital account transactions. There are no repatriation or surrender requirements. Open position limits on banks were 30 percent on aggregate positions and 20 percent for individual currencies. | Foreign exchange intervention has been in accordance with the currency board arrangement, which also governs coordination with monetary policy. |
| Moldova | Arrangement: Independently floating. Outcome: The exchange rate of the leu has been relatively stable against the U.S. dollar with a slight depreciation in the latter part of 1997. Gross reserves increased to 3.9 months of imports with limited amounts of net intervention by the National Bank of Moldova. | The exchange rate is unified. The official exchange rate is determined in daily fixing sessions of the Chisinau Interbank Foreign Currency Exchange (CIFCE) auctions. The spread between cash and noncash rates is insignificant. The interbank market has developed steadily and soundly (98 percent of total turnover). A revised code of conduct has been adopted by a majority of commercial banks. There is no dealers’ association. Foreign exchange bureaus in the cash market are active and functioning well. | Moldova accepted Article VIII status in June 1995. The leu is freely convertible in current account transactions. There are no surrender requirements. Repatriation requirements remain. Capital accounts remain restricted with rather strict licensing requirements from the central bank; capital inflows are treated liberally. Open position limits on banks were 25 percent on aggregate positions. | Foreign exchange intervention is conducted through auctions and partly in interbank market. The Monetary and Foreign Exchange Committee meets at least weekly to determine the mix of monetary and foreign exchange operations. Reserve management: The central bank has full responsibility for managing foreign exchange reserves. Investments are made properly with prudential rules fully respected. Internal control and administration: The foreign exchange operations section is properly structured with separate front, middle, and back offices. There are suitable equipment and a skilled staff. Reporting procedures are in place. |
| Russia | Arrangement: Other managed floating. On July 1, 1996 the Central Bank of Russia switched to a sliding band regime. Announced band for 1997 slid from Rub 5,500-6,100 in January to Rub 5,750-6,350 at year-end. To stabilize the exchange rate on a short-term basis, the central bank announces daily a narrower intervention band. For the period 1998-2000 the central bank has announced a central rate of new Rub 6.2 per U.S. dollar, with a margin of ±15 percent (compared to about ±5 percent under the 1997 regime). Outcome: The central bank has maintained an increase in inflows of foreign capital. An outflow of foreign capital at the beginning of the year was of a temporary nature. Gross reserves increased from two months of imports in 1996 to 2.4 months in 1997. | The exchange rate is unified. The official exchange rate is determined by the central bank in relation to bid-ask quotations of more than 20 large banks in the interbank market. Interbank trading is active. A government tax was imposed on net turnover at Moscow Interbank Foreign Currency Exchange (MICEX), which led to a further shift toward the interbank market. Market share was about 80 percent of total transactions at end-1996. Interbank trading in foreign exchange derivatives occurs only in Moscow. | Russia accepted Article VIII status in June 1996. Liberalization of foreign access to treasury bill market will be completed in 1998 with the lifting of all remaining restrictions of nonresident investment in the government securities market. Surrender requirement: 50 percent of export proceeds must be sold through authorized banks. There is a repatriation requirement of 100 percent. Enforcement of capital restrictions is monitored by the central bank. Open exposure limits are not consistent with international practice. Some progress has occurred in making such limits more effective. | Foreign exchange intervention is conducted both in MICEX and the interbank market to smooth out fluctuations in the exchange rate within the band. Greater coordination with monetary policy is needed. Reserve management: The central bank is responsible for managing official reserves, while a small part of the official reserves are managed by the Ministry of Finance and part are deposited in former Soviet sectoral banks abroad; authorities wish to centralize reserves at the central bank, although no new development reported. Reserves held at the central bank are managed with clear separation of functions. |
| Tajikistan | Arrangement: Independently floating. The official rate has been kept fixed since May 1997. Outcome: The exchange rate depreciated sharply during 1997 (from TR 330 per U.S. dollar at end-1996 to an estimated TR 800 by end-1997). Gross reserves remained below one month of imports in 1997. | The exchange rate is unified; however, from end-1996, foreign exchange has been increasingly allocated through directed credit. The National Bank of Tajikistan stopped auctions; the Tajikistan Interbank Foreign Currency Exchange (the TICEX) virtually ceased to function; and the official rate became set administratively. The commercial bank rate spread over the official rate was stable at around 25 percent on average during 1997. Weekly auctions were restarted in July and since then NBT has unified the cash and noncash auctions. However, lack of transparency in auctions resulted in continuing segmentation between the curb market and auctions. Interbank trading is permitted but it attracts limited interest. | Tajikistan has not yet accepted Article VIII status. Import and export duties were reinstated during the first half of 1997. There is no surrender requirement, but there is a repatriation requirement. There are some capital account restrictions. Open position limits were to be introduced in 1998. | Foreign exchange interventions have been conducted through weekly auctions, and are currently aimed at supporting the exchange rate. Reserve management: The central bank has full control of foreign exchange reserves. Guidelines need to be further enhanced. Internal control and administration: There is no back office with proper facilities for confirmation. Also, there is no clear separation of responsibilities. There is a clear need for improvement in skills, better correspondent account management, and internal reporting. |
| Turkmenistan | Arrangement: Other managed floating. Outcome: The official rate has been fixed since May 1997; however, a growing spread emerged with bank cash rate, which approximates the curb market rate. Grass reserves rose significantly to 16 months of imports in 1997 from about 9 months in 1996. | The official exchange rate was unified at the bank market rate on January 1, 1996, but a dual system was reintroduced in February until April. The official rate was established at the weekly foreign exchange auctions; however, access is restricted and certain transactions are excluded. The commercial bank rate spread over the official rate was stable at around 30 percent during 1997. On April 13, 1998 the central bank announced the introduction of a unified exchange rate. Interbank trading has been allowed since end-1995, but has been subject to restrictions on the size of the transactions; the volume of trading remains extremely thin. | Turkmenistan has not yet accepted Article VIII status. A number of exchange restrictions have been maintained, some of them giving rise to multiple-currency practice. Bilateral and trilateral payment arrangements remain. Surrender requirements have been unified at 50 percent and have been eliminated for joint venture and private sector firms in 1997. Also elimination of surrender requirement of oil/gas exports to the Foreign Exchange Reserve Fund. Capital account restrictions are enforced. Open position limits will be introduced in 1998. | Reserve management: The Central Bank of Turkmenistan does not have full control over official reserves, but retains responsibility for oversight of their management, which is largely entrusted to several major western banks. Internal control and administration: Back and front offices are separated. Improvements in payments and communications systems were introduced in 1997, and a major upgrade is under way that will involve the establishment of an electronic settlement system. |
| Ukraine | Arrangement Other managed floating. The band for the exchange rate widened from HRV 1.7–1.9 per U.S. dollar at the end of 1997 to HRV 1.8–2.255 in 1998. Outcome: The exchange rate was stable against the U.S. dollar during most of 1997. However, a change in market sentiment at the end of 1997 resulted in pressures on the exchange rate with capital outflows from the treasury bill market. Gross reserves increased from 1.1 weeks of imports at end-1996 to 1.4 weeks by end-1997. | The exchange rate is unified. The official exchange rate is determined through competitive bidding of commercial banks at daily auctions of the National Bank of Ukraine. Interbank trading is allowed to take place within a margin of ±0.3 percent around the official rate. Turnover in the interbank market is larger than the auction market. The foreign exchange bureau was introduced in 1995. A maximum spread of 10 percent was imposed between the official rate and the cash rate quoted by the bureaus. | Ukraine accepted Article VIII status in September 1996. Surrender requirements were abolished in 1997. Repatriation requirements remain. Authorities intend to gradually remove restrictions on capital transactions. In 1997 restrictions were lifted for residents to borrow foreign exchange from nonresidents. Open position limits are in place. New regulations are under preparation that will limit overall exposure to 40 percent of bank capital and 20 percent for individual currencies. | Foreign exchange intervention has been conducted on the interbank market only since end-1996, and is aimed at smoothing short-term exchange rate fluctuations. Reserve management: The central bank has widened the spectrum of operations in order to enhance effectiveness of management. The main instruments are short- and long-term deposits, government securities, and investments entrusted to external managers. Internal control and administration: Over the past year the central bank has been developing its own system of assets management that meets international standards and provides for risk assessment. |
| Uzbekistan | Arrangement: Other managed floating. Outcome: The exchange system came under pressure by mid-1996 in light of a deteriorating economic situation and the Central Bank of Uzbekistan let the official rate depreciate to some extent. Depreciation continued in 1997 though at a slower pace. Gross reserves decreased from 5.4 months of imports at end-1996 to about 3.6 months by end-1997. | Exchange rate is not unified: (i) certain importers and transactions (e.g., industrial exporters) have access to centralized foreign exchange resources through central bank auctions; (ii) importers of some consumer goods can obtain foreign exchange at the more depreciated commercial bank rate and for other consumer goods only through the illegal curb market; (iii) buying-selling rates for cash transactions of foreign exchange bureaus are administratively set below the official rate (12 percent discount). These practices give rise to multiple-currency practice. The official exchange rate is determined weekly based on the central bank auction rates. The frequency of auctions was raised from weekly to daily in March 1997. | Uzbekistan has not yet accepted Article VIII status. After an initial liberalization in late 1995, the exchange system was severely restricted in late-1996, creating a segmented foreign exchange market. Foreign currency receipts from exports of goods and services are subject to a 30 percent surrender requirement. Receipts in convertible currency from centralized exports of gold and cotton are subject to 100 percent surrender to the central bank at the official exchange rate. There are some restrictions on capital account transactions. Open position limits are in place (20 percent of statutory capital). | Foreign exchange intervention is conducted through the auction system. Reserve management is effected by the central bank, although in a number of instances the National Bank for Foreign Economic Activity may act as an agent. Reserves are kept in precious metals and freely convertible currency. |
Table 8.4.
Sources: Country authorities; and IMF.
Developments in Foreign Exchange, 1997
| Exchange Rate Arrangements and Policy | Market Structure | Regulatory Framework | Central Bank Operations | |
|---|---|---|---|---|
| Armenia | Arrangement: independently floating. Outcome: After depreciating by 14 percent during the first five months of 1997, the exchange rate vis-à-vis the U.S. dollar stabilized and appreciated slightly in response to capital inflows and changes in economic conditions. Gross reserves increased to 3.1 months of imports by end-1997 compared to 2.2 months at end-1996. | The exchange rate is unified. The official rate is set daily by the central bank at the midpoint of previous day’s buying and selling rates in the interbank market. The role of foreign exchange auctions (daily auctions on the stock exchange) has essentially been eliminated. Interbank trading is expanding. Market procedures still need some improvement (reporting of foreign exchange transactions, dealers’ association, codes of conduct and settlement, procedures), and developments are under way in these areas. Foreign exchange bureaus now have brokerage activities, and the need for bank affiliation was lifted. | Article VIII status (May 1997): The current account is practically free of restrictions. There is no surrender requirement for repatriation requirement. There are practically no capital restrictions, but authorities retain the power to impose them. The open position limit is 40 percent, high in relation to international standards, and is applied only to long positions. Since March 1, 1998, short or long foreign exchange positions have been limited to 40 percent. In addition open positions on currencies other than Swiss francs and those included in ECU and SDR are limited to 10 percent. | Foreign exchange intervention is made exclusively through the interbank market, and is coordinated with monetary policy (often used as a monetary policy instrument). Reserve management is well-advanced. A broad set of investment guidelines has been established with an average maturity up to three months in high-quality institutions; derivatives are prohibited. The Investment Committee reviews decisions fortnightly with daily and weekly reports. Internal control and administration of the foreign exchange operations is well organized, and from late 1997 has been combined with domestic operations, with better coordination between back, middle, and front offices. |
| Azerbaijan | Arrangement: Independently floating. Outcome: The exchange rate of the manat continued gradually appreciating during 1997. Gross reserves increased from 2.0 months of imports in 1996 to 3.8 months in 1997. | The exchange rate is unified with the official/cash buying rate spread in the 1-4 percent range during most of 1996. The official exchange rate is set at daily foreign exchange auctions in the Baku International Currency Exchange (BICEX) with individuals allowed in 1997 to purchase foreign exchange for bona fide current account transactions. Auctions are transparent, but the settlement of transactions needs to be improved. In August 1997 the Azerbaijan National Bank lifted the prohibition on interbank market trading. Cash exchange takes place through licensed foreign exchange bureaus. Selling rate should not exceed 5 percent of official rate. | Has not yet achieved Article VIII status but under current plans will do so in the context of next Article IV consultation. Progress has been made in eliminating almost all restrictions on current account transactions. There is no surrender requirement. The repatriation requirement for enterprises that are current in tax payments was abolished in 1996. The restrictions on capital transactions seem enforced with a high degree of compliance. Open position limits are in place. | Foreign exchange intervention occurs through the auction system and the interbank foreign exchange market. It is used to smooth exchange rate movements, and is coordinated with monetary policy (sales are kept broadly consistent with the targeted growth of base money). Reserve management: The central bank is responsible for managing foreign exchange and gold reserves. The central bank board has formulated an official reserve management policy. Current practice is to keep virtually all reserves in U.S. dollar deposits in some of the world’s largest banks and a few central banks. Some, however, are held in a domestic commercial bank. |
| Belarus | Arrangement: Other managed floating. Outcome: During 1997 there was a smooth depreciation of exchange rate as a result of interventions on the exchange and use of restrictions on the buying of foreign currency. Grass reserves remained below one month of imports in 1996 and 1997. | Foreign currency is allocated predominantly for purchasing strategically important imports (for the most part energy resources). The exchange rate is determined in daily trading sessions on the Interbank Currency Exchange. The Interbank Currency Market legally operates, but in actuality restrictions on formation of exchange rates do not allow it to operate at full volume. On the over-the-counter market, the exchange rate for a transaction may not exceed the unified exchange rate of the National Bank of Belarus and may not be more than 2 percent beneath it. The difference between the official exchange rate and the exchange rate determined on the curb market was as much as 70-80 percent in the first quarter of 1998. Since December 1997 operations on the cash foreign currency market have been liberalized. | Belarus does not yet have Article VIII status. Remaining restrictions give rise to a multiple-currency practice. Surrender requirement for export proceeds was reduced to 30 percent in June 1997. There is a repatriation requirement. Capital account flows are strictly regulated by the central bank. There are limits on open foreign exchange positions for banks, but these apply to the difference of short-long open positions separately with regard to freely convertible currency and currencies with limited convertibility. | Foreign exchange intervention has been solely through the auction system. Coordination with monetary policy needs improvement. Reserve management is centralized at the central bank, which continues to deposit part of its foreign exchange reserves in domestic banks. Satisfactory guidelines with respect to currency distribution, acceptable instruments, and limits have been established. |
| Estonia | Arrangement: The kroon is pegged to the deutsche mark, which will be replaced by a peg to the euro with the advent of the European Monetary Union. Outcome: The currency board arrangement has been successfully maintained, and the exchange rate is stable. Gross reserves were at 1.9 months of imports for 1997 compared to 2.5 months in 1996. | The exchange rate was unified under the currency board Arrangement: Transactions in convertible currencies are freely handled by commercial banks which can quote their own exchange rates. | Estonia accepted Article VIII status in August 1994. There is full convertibility for all current and virtually all international capital account transactions. There are no repatriation or surrender requirements. Open position limits are in place: Exposure has been added to risks under capital adequacy regulations. There are no direct limits, except for currencies of non-OECD countries or for currencies of those countries that have not concluded agreements within the IMF’s General Arrangements to Borrow (GAB): exposure limited to 5 percent of capital (10 percent for Latvia and Lithuania). | Foreign exchange intervention was coordinated with monetary policy according to the currency board Arrangement: Reserve management: The central bank has a reserve cover in deutsche marks exceeding 130 percent. |
| Georgia | Arrangement Other managed floating. Outcome: The lari remained broadly stable against the U.S. dollar during 1997. The National Bank of Georgia was a net purchaser of foreign exchange in the second half of 1997 for the first time since the introduction of the lari in late 1995. Gross reserves have fallen to 2.5 months of imports in 1997 from 2.7 months of imports in 1996. | The exchange rate is unified, with the official rate set daily on the basis of the auction rate. Foreign exchange auctions are well-established, moving to daily frequency in January 1996. The interbank market accounts for about 40 percent of total transactions and is growing in part due to increased confidence among banks. Banks with good financial standing conduct half of their transactions in this market, which is cheaper than the Tbilisi Interbank Currency Exchange (TICEX), where an official fee is applied. A code of conduct is under preparation. Foreign exchange bureaus can buy and sell cash since 1993. | Georgia accepted Article VIII status in December 1996. The exchange system is free of restrictions on current and capital accounts, although capital flows are subject to a registration requirement for monitoring. There are no surrender or repatriation requirements. Open position limits are now strictly enforced and are backed by penalties of 0.1 percent per day. Limits were reduced to 20 percent for aggregate positions (from 25 percent) and to zero for individual positions (from 10 percent), effective December 1997. | Foreign exchange intervention through auctions in TICEX, and has been one of the main instruments of monetary policy and of exchange rate management, consistent with meeting reserve targets under the IMF program. Reserve management: The central bank is well advanced in managing reserves, and has established a reserve management committee. Investment is mainly in secure short-term deposits, with some diversification in treasury bills already started. Internal control and administration: The central bank has set up a dealing room separated from the back office. |
| Kazakhstan | Arrangement Managed floating. Outcome: The tenge has been stable in nominal terms during most of 1997. Gross reserves rose slightly to 3.2 months of imports in 1997 from 3.1 months in 1996. | The exchange rate is unified. Official exchange rate set weekly by the Technical Committee for Monetary and Exchange Policy based on the daily auction rate and interbank market rates, which differ only slightly from the rate of the foreign exchange bureaus. Interbank trading is developing well with market share representing 65 percent of total foreign exchange transactions during the period from January to September 1997, compared to 56 percent in 1996. A code of conduct for dealers was adopted in 1997, and the establishment of a dealers’ association is under discussion. The foreign exchange bureau market is fairly significant with 2,135 licenced foreign exchange bureaus. | Kazakhstan accepted Article VIII status in July 1996. There is no surrender requirement. Repatriation requirements remain unless a special license is issued by the National Bank of Kazakhstan with the approval of the ministry of finance (if the amount exceeds the equivalent of US$100,000) and the Strategic Planning and Reform Agency (if the amount exceeds the equivalent of US$10 million). Capital account transactions involving an outflow of capital from the republic (direct and portfolio investments abroad, and credits and loans to nonresidents for a period of more than 180 days) and carried out in foreign currency shall be licensed by the central bank. Capital inflows (direct and portfolio investments in Kazakhstan, and credits and loans received by residents for a period of more than 180 days) in excess of the equivalent of US$100,000 shall be subject to registration with the central bank. Open position limits of 30 percent of capital for individual currencies; and 50 percent for aggregate positions with daily reporting to the central bank required. Limits were not consistently observed. | Foreign exchange intervention has been mainly in the auction market. The central bank also intervenes in the interbank market, but less frequently, depending on exchange rate and timing. Reserve management: An investment committee was established and limits to risk exposure were adopted in 1997. Internal control and administration were strengthened by establishing a clear distinction between the back and front offices. |
| Kyrgyz Republic | Arrangement: Other managed floating. Outcome: Since May 1997 the som has remained broadly stable. Overall, it depreciated by 4.18 percent between January and October 1997. Gross reserves increased from 1.7 months of imports at the end of 1996 to 3.3 months at end-1997. | The exchange rate is unified. The official exchange rate is determined in twice-weekly foreign exchange auctions at the central bank. The method for holding the auctions was changed to a multiple-price mechanism in February 1998. The official rate of the central bank is the weighted average of the auction price. Turnover at The auction fell further in 1997 ($37 million from January to September 1997 compared to $97 million in 1996). Limited interbank trading (amounted to 39 percent of the total foreign exchange transactions from January to August 1997). | Kyrgyz Republic accepted Article VIII status in March 1995 with full capital and current account convertibility. There are no surrender or repatriation requirements. Open position limits are in place (15 percent and 30 percent on individual and aggregate currency positions respectively). | Foreign exchange intervention is through auctions, mainly the sale of donor funds, primarily for the purpose of limiting exchange rate fluctuations, and to adjust banking system liquidity. Reserves management: Investment Committee was established in 1994, guidelines for portfolio composition and permissible investments strengthened in 1997. Internal control and administration: Good progress has been made with clear separation of back and front offices. More back-office training is needed. |
| Latvia | Arrangement: The lats is pegged to the SDR. Outcome: The lats has adjusted slightly against the U.S. dollar. The authorities remained committed to the peg as a cornerstone of monetary policy. Gross reserves fell slightly to 3.0 months of imports in 1997. | The exchange rate is unified. The Bank of Latvia reviews domestic and international exchange markets on a daily basis, and announces daily buying and selling rates for the lats. Interbank trading is developing, with trading among commercial banks taking place through a telephone system. An informal dealers’ committee was set up in 1995. | Latvia accepted Article VIII status in June 1994. Current and capital account transactions have been fully liberalized. There are no surrender or repatriation requirements. Open position limits are 10 percent for each currency and 20 percent on aggregate. | Foreign exchange intervention is conducted in the interbank market. Reserves management is relatively well advanced with an investment committee meeting weekly. There has been a gradual move to active management of reserves. Internal control and administration has been strengthened with clearer distinction between front and back offices, and stronger market monitoring. |
| Lithuania | Arrangement: The litas is pegged to the U.S. dollar under a currency board Arrangement: In view of the integration into the EU, exit strategy from the currency board arrangement is envisaged. The Bank of Lithuania has adopted a three-stage monetary policy program from 1997 to 1999 in support of reorientation of the peg to the euro. Outcome: The litas has been stable against the dollar. Gross reserves increased to 2.9 months of imports. | The exchange rate was unified under the currency board Arrangement: Banks authorized to trade in foreign exchange are allowed to transact among themselves, as well as with residents and nonresidents. | Lithuania accepted Article VIII status in May 1994. There is full convertibility for all current and capital account transactions. There are no repatriation or surrender requirements. Open position limits on banks were 30 percent on aggregate positions and 20 percent for individual currencies. | Foreign exchange intervention has been in accordance with the currency board arrangement, which also governs coordination with monetary policy. |
| Moldova | Arrangement: Independently floating. Outcome: The exchange rate of the leu has been relatively stable against the U.S. dollar with a slight depreciation in the latter part of 1997. Gross reserves increased to 3.9 months of imports with limited amounts of net intervention by the National Bank of Moldova. | The exchange rate is unified. The official exchange rate is determined in daily fixing sessions of the Chisinau Interbank Foreign Currency Exchange (CIFCE) auctions. The spread between cash and noncash rates is insignificant. The interbank market has developed steadily and soundly (98 percent of total turnover). A revised code of conduct has been adopted by a majority of commercial banks. There is no dealers’ association. Foreign exchange bureaus in the cash market are active and functioning well. | Moldova accepted Article VIII status in June 1995. The leu is freely convertible in current account transactions. There are no surrender requirements. Repatriation requirements remain. Capital accounts remain restricted with rather strict licensing requirements from the central bank; capital inflows are treated liberally. Open position limits on banks were 25 percent on aggregate positions. | Foreign exchange intervention is conducted through auctions and partly in interbank market. The Monetary and Foreign Exchange Committee meets at least weekly to determine the mix of monetary and foreign exchange operations. Reserve management: The central bank has full responsibility for managing foreign exchange reserves. Investments are made properly with prudential rules fully respected. Internal control and administration: The foreign exchange operations section is properly structured with separate front, middle, and back offices. There are suitable equipment and a skilled staff. Reporting procedures are in place. |
| Russia | Arrangement: Other managed floating. On July 1, 1996 the Central Bank of Russia switched to a sliding band regime. Announced band for 1997 slid from Rub 5,500-6,100 in January to Rub 5,750-6,350 at year-end. To stabilize the exchange rate on a short-term basis, the central bank announces daily a narrower intervention band. For the period 1998-2000 the central bank has announced a central rate of new Rub 6.2 per U.S. dollar, with a margin of ±15 percent (compared to about ±5 percent under the 1997 regime). Outcome: The central bank has maintained an increase in inflows of foreign capital. An outflow of foreign capital at the beginning of the year was of a temporary nature. Gross reserves increased from two months of imports in 1996 to 2.4 months in 1997. | The exchange rate is unified. The official exchange rate is determined by the central bank in relation to bid-ask quotations of more than 20 large banks in the interbank market. Interbank trading is active. A government tax was imposed on net turnover at Moscow Interbank Foreign Currency Exchange (MICEX), which led to a further shift toward the interbank market. Market share was about 80 percent of total transactions at end-1996. Interbank trading in foreign exchange derivatives occurs only in Moscow. | Russia accepted Article VIII status in June 1996. Liberalization of foreign access to treasury bill market will be completed in 1998 with the lifting of all remaining restrictions of nonresident investment in the government securities market. Surrender requirement: 50 percent of export proceeds must be sold through authorized banks. There is a repatriation requirement of 100 percent. Enforcement of capital restrictions is monitored by the central bank. Open exposure limits are not consistent with international practice. Some progress has occurred in making such limits more effective. | Foreign exchange intervention is conducted both in MICEX and the interbank market to smooth out fluctuations in the exchange rate within the band. Greater coordination with monetary policy is needed. Reserve management: The central bank is responsible for managing official reserves, while a small part of the official reserves are managed by the Ministry of Finance and part are deposited in former Soviet sectoral banks abroad; authorities wish to centralize reserves at the central bank, although no new development reported. Reserves held at the central bank are managed with clear separation of functions. |
| Tajikistan | Arrangement: Independently floating. The official rate has been kept fixed since May 1997. Outcome: The exchange rate depreciated sharply during 1997 (from TR 330 per U.S. dollar at end-1996 to an estimated TR 800 by end-1997). Gross reserves remained below one month of imports in 1997. | The exchange rate is unified; however, from end-1996, foreign exchange has been increasingly allocated through directed credit. The National Bank of Tajikistan stopped auctions; the Tajikistan Interbank Foreign Currency Exchange (the TICEX) virtually ceased to function; and the official rate became set administratively. The commercial bank rate spread over the official rate was stable at around 25 percent on average during 1997. Weekly auctions were restarted in July and since then NBT has unified the cash and noncash auctions. However, lack of transparency in auctions resulted in continuing segmentation between the curb market and auctions. Interbank trading is permitted but it attracts limited interest. | Tajikistan has not yet accepted Article VIII status. Import and export duties were reinstated during the first half of 1997. There is no surrender requirement, but there is a repatriation requirement. There are some capital account restrictions. Open position limits were to be introduced in 1998. | Foreign exchange interventions have been conducted through weekly auctions, and are currently aimed at supporting the exchange rate. Reserve management: The central bank has full control of foreign exchange reserves. Guidelines need to be further enhanced. Internal control and administration: There is no back office with proper facilities for confirmation. Also, there is no clear separation of responsibilities. There is a clear need for improvement in skills, better correspondent account management, and internal reporting. |
| Turkmenistan | Arrangement: Other managed floating. Outcome: The official rate has been fixed since May 1997; however, a growing spread emerged with bank cash rate, which approximates the curb market rate. Grass reserves rose significantly to 16 months of imports in 1997 from about 9 months in 1996. | The official exchange rate was unified at the bank market rate on January 1, 1996, but a dual system was reintroduced in February until April. The official rate was established at the weekly foreign exchange auctions; however, access is restricted and certain transactions are excluded. The commercial bank rate spread over the official rate was stable at around 30 percent during 1997. On April 13, 1998 the central bank announced the introduction of a unified exchange rate. Interbank trading has been allowed since end-1995, but has been subject to restrictions on the size of the transactions; the volume of trading remains extremely thin. | Turkmenistan has not yet accepted Article VIII status. A number of exchange restrictions have been maintained, some of them giving rise to multiple-currency practice. Bilateral and trilateral payment arrangements remain. Surrender requirements have been unified at 50 percent and have been eliminated for joint venture and private sector firms in 1997. Also elimination of surrender requirement of oil/gas exports to the Foreign Exchange Reserve Fund. Capital account restrictions are enforced. Open position limits will be introduced in 1998. | Reserve management: The Central Bank of Turkmenistan does not have full control over official reserves, but retains responsibility for oversight of their management, which is largely entrusted to several major western banks. Internal control and administration: Back and front offices are separated. Improvements in payments and communications systems were introduced in 1997, and a major upgrade is under way that will involve the establishment of an electronic settlement system. |
| Ukraine | Arrangement Other managed floating. The band for the exchange rate widened from HRV 1.7–1.9 per U.S. dollar at the end of 1997 to HRV 1.8–2.255 in 1998. Outcome: The exchange rate was stable against the U.S. dollar during most of 1997. However, a change in market sentiment at the end of 1997 resulted in pressures on the exchange rate with capital outflows from the treasury bill market. Gross reserves increased from 1.1 weeks of imports at end-1996 to 1.4 weeks by end-1997. | The exchange rate is unified. The official exchange rate is determined through competitive bidding of commercial banks at daily auctions of the National Bank of Ukraine. Interbank trading is allowed to take place within a margin of ±0.3 percent around the official rate. Turnover in the interbank market is larger than the auction market. The foreign exchange bureau was introduced in 1995. A maximum spread of 10 percent was imposed between the official rate and the cash rate quoted by the bureaus. | Ukraine accepted Article VIII status in September 1996. Surrender requirements were abolished in 1997. Repatriation requirements remain. Authorities intend to gradually remove restrictions on capital transactions. In 1997 restrictions were lifted for residents to borrow foreign exchange from nonresidents. Open position limits are in place. New regulations are under preparation that will limit overall exposure to 40 percent of bank capital and 20 percent for individual currencies. | Foreign exchange intervention has been conducted on the interbank market only since end-1996, and is aimed at smoothing short-term exchange rate fluctuations. Reserve management: The central bank has widened the spectrum of operations in order to enhance effectiveness of management. The main instruments are short- and long-term deposits, government securities, and investments entrusted to external managers. Internal control and administration: Over the past year the central bank has been developing its own system of assets management that meets international standards and provides for risk assessment. |
| Uzbekistan | Arrangement: Other managed floating. Outcome: The exchange system came under pressure by mid-1996 in light of a deteriorating economic situation and the Central Bank of Uzbekistan let the official rate depreciate to some extent. Depreciation continued in 1997 though at a slower pace. Gross reserves decreased from 5.4 months of imports at end-1996 to about 3.6 months by end-1997. | Exchange rate is not unified: (i) certain importers and transactions (e.g., industrial exporters) have access to centralized foreign exchange resources through central bank auctions; (ii) importers of some consumer goods can obtain foreign exchange at the more depreciated commercial bank rate and for other consumer goods only through the illegal curb market; (iii) buying-selling rates for cash transactions of foreign exchange bureaus are administratively set below the official rate (12 percent discount). These practices give rise to multiple-currency practice. The official exchange rate is determined weekly based on the central bank auction rates. The frequency of auctions was raised from weekly to daily in March 1997. | Uzbekistan has not yet accepted Article VIII status. After an initial liberalization in late 1995, the exchange system was severely restricted in late-1996, creating a segmented foreign exchange market. Foreign currency receipts from exports of goods and services are subject to a 30 percent surrender requirement. Receipts in convertible currency from centralized exports of gold and cotton are subject to 100 percent surrender to the central bank at the official exchange rate. There are some restrictions on capital account transactions. Open position limits are in place (20 percent of statutory capital). | Foreign exchange intervention is conducted through the auction system. Reserve management is effected by the central bank, although in a number of instances the National Bank for Foreign Economic Activity may act as an agent. Reserves are kept in precious metals and freely convertible currency. |
Table 8.5.Source: IMF.
Priorities for Future Reform in the Foreign Exchange Area
Bullet marks on this criterion indicate that open position limits are not imposed, or are not strictly enforced, or are large compared with international standards (which tend to be about 15 percent and 30 percent on individual currency and aggregate positions, respectively).
Bullet marks on this criterion imply that the design of a strategy for an orderly liberalization of capital account transactions should be a priority measure.
Table 8.5.
Source: IMF.
Priorities for Future Reform in the Foreign Exchange Area
| Armenia | Azerbaijan | Belarus | Estonia | Georgia | Kazakhstan | Kyrgyz Republic | Latvia | Lithuania | Moldova | Russia | Tajikistan | Turkmenistan | Ukraine | Uzbekistan | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interbank foreign exchange market | |||||||||||||||
| Permission of outside auction Transactions | • | • | |||||||||||||
| Modification of surrender requirement | • | • | • | • | • | ||||||||||
| Open position limits1 | • | • | • | • | • | ||||||||||
| Adoption of code of conduct and market rules | • | • | • | • | • | • | • | ||||||||
| Foreign exchange reserve management | |||||||||||||||
| Basic investment strategy and policy | • | • | • | • | • | ||||||||||
| Centralization of management at central bank or terminating placement with domestic banks | • | • | • | • | |||||||||||
| Exchange and monetary operations coordination | |||||||||||||||
| Harmonization of a decision making process | • | • | • | • | • | ||||||||||
| Current account convertibility | |||||||||||||||
| Elimination of other restrictions including bilateral payments arrangements and multiple currency practices | • | • | • | • | • | ||||||||||
| Acceptance of Article VIII obligations | • | • | • | • | • | ||||||||||
| Capital account convertibility2 | • | • | • | • |
Bullet marks on this criterion indicate that open position limits are not imposed, or are not strictly enforced, or are large compared with international standards (which tend to be about 15 percent and 30 percent on individual currency and aggregate positions, respectively).
Bullet marks on this criterion imply that the design of a strategy for an orderly liberalization of capital account transactions should be a priority measure.
Table 8.5.
Source: IMF.
Priorities for Future Reform in the Foreign Exchange Area
| Armenia | Azerbaijan | Belarus | Estonia | Georgia | Kazakhstan | Kyrgyz Republic | Latvia | Lithuania | Moldova | Russia | Tajikistan | Turkmenistan | Ukraine | Uzbekistan | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interbank foreign exchange market | |||||||||||||||
| Permission of outside auction Transactions | • | • | |||||||||||||
| Modification of surrender requirement | • | • | • | • | • | ||||||||||
| Open position limits1 | • | • | • | • | • | ||||||||||
| Adoption of code of conduct and market rules | • | • | • | • | • | • | • | ||||||||
| Foreign exchange reserve management | |||||||||||||||
| Basic investment strategy and policy | • | • | • | • | • | ||||||||||
| Centralization of management at central bank or terminating placement with domestic banks | • | • | • | • | |||||||||||
| Exchange and monetary operations coordination | |||||||||||||||
| Harmonization of a decision making process | • | • | • | • | • | ||||||||||
| Current account convertibility | |||||||||||||||
| Elimination of other restrictions including bilateral payments arrangements and multiple currency practices | • | • | • | • | • | ||||||||||
| Acceptance of Article VIII obligations | • | • | • | • | • | ||||||||||
| Capital account convertibility2 | • | • | • | • |
Bullet marks on this criterion indicate that open position limits are not imposed, or are not strictly enforced, or are large compared with international standards (which tend to be about 15 percent and 30 percent on individual currency and aggregate positions, respectively).
Bullet marks on this criterion imply that the design of a strategy for an orderly liberalization of capital account transactions should be a priority measure.
Table 8.6.Sources: Central banks; and IMF.
Legal and Regulatory Framework for Banking Supervision
Total capital to total assets. 8 percent is for Tier 1 capital to total assets.
National Bank of Georgia plans to decrease the limit to 25 percent.
Including branches and subsidiary financial enterprises (excluding Moscow branch of Anelik Bank).
15 percent for each customer, 60 percent of total equity holdings.
Armenia has a separate law.
There are laws on debt collection but not specifically on loan collection.
Incorporated in Banks and Banking Act.
Including branches and subsidiary financial enterprises.
Only investment banks are authorized to have holdings in nonfinancial enterprises.
Introduced in the National Bank of Moldova on July 1, 1995. Since January 1998 commercial banks will transfer to the new chart of accounts based on IAS.
The specific law is no longer in force, but the relevant provisions are included in the civil code.
There is no specific law, but legislation in force does stipulate procedures and means of compulsory debt collection.
Included in central bank regulations and law on collateral.
Specific law on money laundering is being developed, and provisions exist within the commercial banking law.
Law on prevention of money laundering adopted on June 19, 1997.
Includes staff of central bank office and 89 regional branches.
Only central bank office; branches also perform supervisory functions.
National Bank of Ukraine does not exercise the authority (unless license is withdrawn).
The Central Bank of Russia is entitled to place dismissal requirements on the owners of a bank.
The Central Bank of Russia can take the case to court to initiate liquidation.
Supervision includes branches.
To be introduced in 1998.
Scheduled for 1998.
Limits are in effect on a stake in the capital of any organization. Proposed to establish limits individually on a stake in the capital of nonfinancial institutions.
Accrued in a separate off-balance sheet account.
Not a special central bank law but a regulation under the Law on Banks and Banking Activities.
Related provisions are included in the new Central Bank Law.
Not functioning.
Ratification of Strasbourg Convention.
Table 8.6.
Sources: Central banks; and IMF.
Legal and Regulatory Framework for Banking Supervision
| Armenia | Azerbaijan | Belarus | Estonia | Georgia | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 55 | 53 | 14 | 39 | 55 | 52 | 22 | 20 | 24 | 25 | ||
| Banking supervision staff/number of banks (in percent) | 167 | 177 | 10 | 38 | 145 | 149 | 157 | 167 | 39 | 47 | ||
| Authority of supervisory agency to exercise: | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Removal of managers | no | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidation | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Forced merger | no | no | no | no | … | … | yes | yes | no | yes | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 5 | … | 10 | … | 10 | … | 10 | … | 101 | ||
| Risk-weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | no | no | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | … | 25 | … | 20 | … | 25 | … | 15 | ||
| Related party lending limits (percent of capital) | … | 10 | … | 10 | … | 20 | … | 10 | … | 502 | ||
| Consolidated supervision | yes3 | yes3 | no | yes | no | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limits | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes | yes | yes | 10 | yes | 10 | yes | 154 | yes | 20 | ||
| Loan classification and provisioning | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Internal control or audit | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Suspension of interest accrual on overdue loans | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | yes | yes | yes | yes | yes | yes | no | yes | ||
| Adopted International Accounting | ||||||||||||
| Standards | no | yes | no | yes | yes | yes | yes | yes | no | no | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Law on contracts | yes | yes | yes | yes | yes | yes | … | under preparation | yes | yes | ||
| Law on collateral | yes5 | yes5 | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on loan collection | yes6 | yes6 | yes | yes | yes | yes | … | yes | yes | yes | ||
| Bankruptcy law | yes5 | yes5 | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | yes | yes | no | yes | yes | yes | yes | yes | yes | yes | ||
| Money laundering law | yes7 | yes7 | no | no | no | no | under preparation | under preparation | … | no | ||
| Kazakhstan | Kyrgyz Republic | Latvia | Lithuania | Moldova | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 117 | 109 | 42 | 44 | 55 | 55 | 53 | 54 | 45 | 48 | ||
| Banking supervision staff/number of banks (in percent) | 116 | 111 | 233 | 244 | 167 | 172 | 133 | 104 | 214 | 218 | ||
| Authority of supervisory agency to exercise | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Removal of managers | no | no | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidation | yes | no | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Forced merger | no | no | no | no | no | no | yes | yes | yes | yes | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 8 | … | 8 | yes | 10 | 13 | 10 | … | 8 | ||
| Risk weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | 25 | 25 | … | 25 | 30 | 25 | … | 30 | ||
| Related party lending limits (percent of capital) | … | 10 | 15 | 15 | … | 15 | 10 | 10 | … | 20 | ||
| Consolidated supervision | no | yes8 | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limits | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes9 | 10 | yes | 15 | yes | 154 | yes | 10 | no | yes | ||
| Loan classification and provisioning | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Internal control/audit | yes | yes | yes | yes | yes | yes | yes | yes | … | yes | ||
| Suspension of interest accrual on overdue loans | yes | yes | yes | yes | yes | yes | yes | yes | … | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| International Accounting Standards | yes | yes | yes | yes | yes | yes | yes | yes | no | yes10 | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on contracts | yes | yes | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on collateral | yes11 | yes | yes | yes | no | yes | no | no | yes | yes | ||
| Law on loan collection | yes12 | yes | yes13 | yes13 | yes | yes | … | … | yes | yes | ||
| Bankruptcy law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | no | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Money laundering law | no | no | … | yes14 | … | yes | prepared | yes15 | … | … | ||
| Russia | Tajikistan | Turkmenistan | Ukraine | Uzbekistan | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 4,10016 | 4,50016 | 14 | 23 | 35 | 45 | 6017 | 130 | 68 | 68 | ||
| Banking supervision staff/number of banks (in percent) | 202 | 269 | 61 | 88 | 233 | 67 | 26 | 58 | 234 | 234 | ||
| Authority of supervisory agency to exercise: | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Removal of managers | yes | partial19 | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Liquidation | no20 | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Forced merger | no | no | yes | yes | yes | yes | no | no | no | no | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 7 | … | 8 | … | 8 | … | 5 | 8 | 8 | ||
| Risk weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | … | 25 | … | 20 | … | 25 | … | 25 | ||
| Related party lending limits (percent of capital) | … | 25 | … | 15 | … | yes | … | 25 | … | 15 | ||
| Consolidated supervision | no21 | yes22 | yes8 | yes | yes | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limns | yes | yes | yes | yes | no | yes23 | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes | no24 | no | … | no23 | no | yes | 25 | yes | 15 | ||
| Loan classification and provisioning | yes | yes | no | no | yes | yes | yes | yes | yes | yes | ||
| Internal control/audit | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Suspension of interest accrual on overdue loans | no | yes22 | no | no | yes | yes | no | yes25 | … | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | no | no | yes | yes23 | no | no | … | yes | ||
| International Accounting Standards | no | partial | no | no | no | yes23 | no | no | no | yes | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | …26 | yes26 | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | … | yes | … | yes | ||
| Law on contracts | yes | yes | yes | yes | no | yes | … | yes | … | yes | ||
| Law on collateral | yes | yes | yes | yes | yes | yes | … | yes | yes | yes | ||
| Law on loan collection | no | no | yes | yes | no | no | … | yes | … | no | ||
| Bankruptcy law | yes | yes | yes27 | yes27 | yes28 | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | no | no | yes27 | yes27 | yes | yes | no | no | yes | yes | ||
| Money laundering law | no | under preparation | yes27 | under preparation | no | no | … | yes29 | … | no | ||
Total capital to total assets. 8 percent is for Tier 1 capital to total assets.
National Bank of Georgia plans to decrease the limit to 25 percent.
Including branches and subsidiary financial enterprises (excluding Moscow branch of Anelik Bank).
15 percent for each customer, 60 percent of total equity holdings.
Armenia has a separate law.
There are laws on debt collection but not specifically on loan collection.
Incorporated in Banks and Banking Act.
Including branches and subsidiary financial enterprises.
Only investment banks are authorized to have holdings in nonfinancial enterprises.
Introduced in the National Bank of Moldova on July 1, 1995. Since January 1998 commercial banks will transfer to the new chart of accounts based on IAS.
The specific law is no longer in force, but the relevant provisions are included in the civil code.
There is no specific law, but legislation in force does stipulate procedures and means of compulsory debt collection.
Included in central bank regulations and law on collateral.
Specific law on money laundering is being developed, and provisions exist within the commercial banking law.
Law on prevention of money laundering adopted on June 19, 1997.
Includes staff of central bank office and 89 regional branches.
Only central bank office; branches also perform supervisory functions.
National Bank of Ukraine does not exercise the authority (unless license is withdrawn).
The Central Bank of Russia is entitled to place dismissal requirements on the owners of a bank.
The Central Bank of Russia can take the case to court to initiate liquidation.
Supervision includes branches.
To be introduced in 1998.
Scheduled for 1998.
Limits are in effect on a stake in the capital of any organization. Proposed to establish limits individually on a stake in the capital of nonfinancial institutions.
Accrued in a separate off-balance sheet account.
Not a special central bank law but a regulation under the Law on Banks and Banking Activities.
Related provisions are included in the new Central Bank Law.
Not functioning.
Ratification of Strasbourg Convention.
Table 8.6.
Sources: Central banks; and IMF.
Legal and Regulatory Framework for Banking Supervision
| Armenia | Azerbaijan | Belarus | Estonia | Georgia | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 55 | 53 | 14 | 39 | 55 | 52 | 22 | 20 | 24 | 25 | ||
| Banking supervision staff/number of banks (in percent) | 167 | 177 | 10 | 38 | 145 | 149 | 157 | 167 | 39 | 47 | ||
| Authority of supervisory agency to exercise: | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Removal of managers | no | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidation | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Forced merger | no | no | no | no | … | … | yes | yes | no | yes | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 5 | … | 10 | … | 10 | … | 10 | … | 101 | ||
| Risk-weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | no | no | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | … | 25 | … | 20 | … | 25 | … | 15 | ||
| Related party lending limits (percent of capital) | … | 10 | … | 10 | … | 20 | … | 10 | … | 502 | ||
| Consolidated supervision | yes3 | yes3 | no | yes | no | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limits | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes | yes | yes | 10 | yes | 10 | yes | 154 | yes | 20 | ||
| Loan classification and provisioning | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Internal control or audit | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Suspension of interest accrual on overdue loans | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | yes | yes | yes | yes | yes | yes | no | yes | ||
| Adopted International Accounting | ||||||||||||
| Standards | no | yes | no | yes | yes | yes | yes | yes | no | no | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Law on contracts | yes | yes | yes | yes | yes | yes | … | under preparation | yes | yes | ||
| Law on collateral | yes5 | yes5 | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on loan collection | yes6 | yes6 | yes | yes | yes | yes | … | yes | yes | yes | ||
| Bankruptcy law | yes5 | yes5 | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | yes | yes | no | yes | yes | yes | yes | yes | yes | yes | ||
| Money laundering law | yes7 | yes7 | no | no | no | no | under preparation | under preparation | … | no | ||
| Kazakhstan | Kyrgyz Republic | Latvia | Lithuania | Moldova | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 117 | 109 | 42 | 44 | 55 | 55 | 53 | 54 | 45 | 48 | ||
| Banking supervision staff/number of banks (in percent) | 116 | 111 | 233 | 244 | 167 | 172 | 133 | 104 | 214 | 218 | ||
| Authority of supervisory agency to exercise | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Removal of managers | no | no | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidation | yes | no | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Forced merger | no | no | no | no | no | no | yes | yes | yes | yes | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 8 | … | 8 | yes | 10 | 13 | 10 | … | 8 | ||
| Risk weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | 25 | 25 | … | 25 | 30 | 25 | … | 30 | ||
| Related party lending limits (percent of capital) | … | 10 | 15 | 15 | … | 15 | 10 | 10 | … | 20 | ||
| Consolidated supervision | no | yes8 | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limits | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes9 | 10 | yes | 15 | yes | 154 | yes | 10 | no | yes | ||
| Loan classification and provisioning | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Internal control/audit | yes | yes | yes | yes | yes | yes | yes | yes | … | yes | ||
| Suspension of interest accrual on overdue loans | yes | yes | yes | yes | yes | yes | yes | yes | … | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| International Accounting Standards | yes | yes | yes | yes | yes | yes | yes | yes | no | yes10 | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on contracts | yes | yes | yes | yes | yes | yes | … | … | yes | yes | ||
| Law on collateral | yes11 | yes | yes | yes | no | yes | no | no | yes | yes | ||
| Law on loan collection | yes12 | yes | yes13 | yes13 | yes | yes | … | … | yes | yes | ||
| Bankruptcy law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | no | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Money laundering law | no | no | … | yes14 | … | yes | prepared | yes15 | … | … | ||
| Russia | Tajikistan | Turkmenistan | Ukraine | Uzbekistan | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | 1996 | 1997 | |||
| Central bank as the supervisory authority | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Number of supervisory staff | 4,10016 | 4,50016 | 14 | 23 | 35 | 45 | 6017 | 130 | 68 | 68 | ||
| Banking supervision staff/number of banks (in percent) | 202 | 269 | 61 | 88 | 233 | 67 | 26 | 58 | 234 | 234 | ||
| Authority of supervisory agency to exercise: | ||||||||||||
| Binding corrective order | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Removal of managers | yes | partial19 | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Conservatorship | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Withdrawal of license | yes | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Liquidation | no20 | yes | yes | yes | yes | yes | yes18 | yes18 | yes | yes | ||
| Forced merger | no | no | yes | yes | yes | yes | no | no | no | no | ||
| Prudential regulations | ||||||||||||
| Capital adequacy ratio (in percent) | … | 7 | … | 8 | … | 8 | … | 5 | 8 | 8 | ||
| Risk weighted capital/asset ratio | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Liquidity ratios | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Maximum exposure to single borrower (percent of capital) | … | 25 | … | 25 | … | 20 | … | 25 | … | 25 | ||
| Related party lending limits (percent of capital) | … | 25 | … | 15 | … | yes | … | 25 | … | 15 | ||
| Consolidated supervision | no21 | yes22 | yes8 | yes | yes | yes | yes | yes | yes | yes | ||
| Open foreign exchange position limns | yes | yes | yes | yes | no | yes23 | yes | yes | yes | yes | ||
| Limits on equity holdings in nonfinancial enterprises (percent of capital) | yes | no24 | no | … | no23 | no | yes | 25 | yes | 15 | ||
| Loan classification and provisioning | yes | yes | no | no | yes | yes | yes | yes | yes | yes | ||
| Internal control/audit | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Suspension of interest accrual on overdue loans | no | yes22 | no | no | yes | yes | no | yes25 | … | yes | ||
| Accounting and legal framework | ||||||||||||
| Broadly adapted financial statements | yes | yes | no | no | yes | yes23 | no | no | … | yes | ||
| International Accounting Standards | no | partial | no | no | no | yes23 | no | no | no | yes | ||
| Commercial banking law | yes | yes | yes | yes | yes | yes | yes | yes | yes | yes | ||
| Central bank law | yes | yes | yes | yes | yes | yes | …26 | yes26 | yes | yes | ||
| Civil code | ||||||||||||
| Property rights | yes | yes | yes | yes | yes | yes | … | yes | … | yes | ||
| Law on contracts | yes | yes | yes | yes | no | yes | … | yes | … | yes | ||
| Law on collateral | yes | yes | yes | yes | yes | yes | … | yes | yes | yes | ||
| Law on loan collection | no | no | yes | yes | no | no | … | yes | … | no | ||
| Bankruptcy law | yes | yes | yes27 | yes27 | yes28 | yes | yes | yes | yes | yes | ||
| Separate provisions for banks | no | no | yes27 | yes27 | yes | yes | no | no | yes | yes | ||
| Money laundering law | no | under preparation | yes27 | under preparation | no | no | … | yes29 | … | no | ||
Total capital to total assets. 8 percent is for Tier 1 capital to total assets.
National Bank of Georgia plans to decrease the limit to 25 percent.
Including branches and subsidiary financial enterprises (excluding Moscow branch of Anelik Bank).
15 percent for each customer, 60 percent of total equity holdings.
Armenia has a separate law.
There are laws on debt collection but not specifically on loan collection.