Bank of Botswana looking to modernize bank functions

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Chedza Mmolawa

The governor of the Bank of Botswana, Moses Pelaelo said there are several aspects of mandates and operations of the Bank that require modernization and upgrading in order for the institution to remain relevant and contribute to national development aspirations and objectives. He said this during the eve of the National Business Conference (NBC) held in Francistown this past Sunday. Pelaelo said the intention is to project the relevance and role of the Bank of Botswana in contributing to the journey towards reaching a high-income status for Botswana.
He further said that the Bank exists to protect the value of the local currency, the Pula and thebe, through currency management operations, monetary policy, exchange rate management, regulation and supervision of relevant financial institutions and facilitating sound payments and settlement frameworks. He added that monetary policy and the various instruments, including communication, can only be effective if undertaken alongside improvements in other operations of the Bank and policy transmission channels including a need to adapt to changing domestic and global conditions.
Pelaelo said the bank needs to ensure that they are appropriately positioned to adequately address new developments and related challenges. Some of these include fintechs, digital currencies and similar innovations as well as adopt best practice to sustain national development. “In this regard, there is an ongoing review of the Bank of Botswana Act, the Banking Act and proposals to promulgate a national payments law. The intention is to enhance operational capability, predictability and integrity of policy and regulatory frameworks, as well as to clarify institutional relationships and promote accountability and transparency,” he said.
The governor said one of the key 5 lessons from the 2008/9 global financial crisis is the need for joint, speedy and coordinated response, by all relevant stakeholders, to any substantial systemic risks emanating from any parts of the financial sector. He said as part of the broader financial development architecture, there is a need to re-configure institutional arrangements for the financial sector oversight to achieve greater focus on macro-prudential dimensions of financial stability policy and financial safety nets.
He also explained that the second area of continuing improvement relates to the role of the monetary policy framework in facilitating a conducive environment for private businesses to thrive. Pelaelo said an appropriate policy framework should encompass definition and clarity of objectives and instruments, understanding and calibration of transmission channels and, therefore, predictability and, in turn, accountability. He added that it is for these reasons that the Bank’s primary mandate of price stability, is clearly defined as a sustainable level of annual inflation that is within the medium-term objective range of 3 – 6 percent.
“Let me, underscore the point that low and predictable level of inflation and a conducive financial environment foster savings mobilization, productive investment and international competitiveness of domestic producers which, in turn contribute towards the broader national objectives of sustainable economic development and employment creation,” said Pelaelo.
He said the third developmental area, is the Bank’s role in promoting the growth, spread and deepening of money and capital markets and financial inclusion. The development of a wide range of money and capital markets institutions and instruments enables substitution and access to a variety of purpose-fit saving and investment channels as monetary policy and conditions change; therefore, sustained effectiveness of policy transmission in affecting market activity.
Pelaelo said, “The Bank considers and uses communication as a direct, practical and potent instrument of policy. It is, therefore, important that in order to generate the desired response, communication is recognized and acknowledged by the market and general public as a policy instrument. However, this is to the extent that such communication is backed by durable integrity and reliability of the Bank of Botswana, premised on predictability and transparency.”
He said the combination of economic developments and dissemination of policy analysis and economic projections by the Bank helps the public and economic agents to anticipate policy action. For example, expectations about future inflation and, therefore, interest rates, are a key determinants in formulating investment and consumption decisions, hence economic activity. He said communication also facilitates accountability and various platforms and media are used in this regard, and that overall, increased transparency and communication regarding the policy framework, objectives and strategy, as well as decisions and progress in meeting the objectives of the Bank can contribute to desired market responses and policy effectiveness.
He concluded by assuring the public that the Bank’s implementation of monetary policies will continue to focus on entrenching expectations of low, predictable and sustainable inflation through timely responses to price developments. At the same time, the Bank will contribute to effective oversight of the financial system to ensure sustained financial stability and integrity of the payments system while promoting market development and financial inclusion.