New challenges for a new generation: the Central Bank at 30 |30 November 2008

But while the People’s Assembly is no more and the seat of legislative power has moved to the National Library, the central role of the Seychelles Monetary Authority, and the Central Bank that emerged from it, is as important to the functions of the nation today as it was during the infancy of the independent Seychelles.

Tasked with regulating the country’s monetary policy, with its implications for interest rates, inflation and the impact these factors have on the daily lives of all citizens of Seychelles, the Central Bank today is an independent body, functioning for the good of Seychelles without regard to changing political tides.

And as it reaches its 30th birthday it provides employment to the next generation of Central Bank employees, too young to remember the birth of the organisation but ready to help it move forward and face whatever economic challenges may arise tomorrow.
 
Evolution of the Central Bank

The Central Bank of Seychelles is the apex financial institution in the country, controlling the issue of currency, managing public debt, acting as banker and financial agent of the government and serving as regulator and lender of last resort to the country’s commercial banking sector.

But the Bank’s adoption of this pre-eminent role in the working of the economy of Seychelles has been a gradual process, evolving over the course of the country’s history as an independent nation.

1936 saw the Seychelles Currency Board set up, a move mirroring the development of similar financial institutions in many British colonies, which placed the responsibility for the issue and redemption of Seychelles’ currency with the Colonial Secretary and closely bound the economy with that of the colonial power.

This situation remained largely unchanged throughout the remaining 40 years of British rule but did, over time, gradually shift to place greater power in the hands of local officials with the establishment, in 1974, of the Currency Commission.

At the invitation of the government, an International Monetary Fund (IMF) mission arrived in Seychelles in 1976 to review the potential for modernising the Currency Commission and issued recommendations in support of local opinion on the need to achieve greater separation between the very different economies of Seychelles and the UK.

The IMF recommendation to set up an institution capable of managing monetary aggregates found fruition in the emergence of the Seychelles Monetary Authority (SMA) in 1978, increasing the autonomy of Seychelles’ economic management and granting it the authority to set interest rates and credit controls.

Less than six months later, the SMA quickly proved its ability when, in March 1979, the locally incorporated Seychelles Commercial Bank went into liquidation and the SMA intervened to ensure the liquidation process was performed in accordance with the law and to protect depositors.

The SMA quickly grew into its role of issuing currency, managing public debt, functioning as banker and fiscal agent of the government and as banker and lender of last resort to the banks. In 1982 it took over from Barclays Bank International responsibility for the day-to-day operations of government accounts, proving its readiness for transformation into a full central bank.

Under the Central Bank of Seychelles Act 1982, the SMA was dissolved and the Central Bank of Seychelles inaugurated on January 1, 1982. Coupled with an expansion in its powers, the new institution also required a physical expansion, first taking over the SMA’s Liberty House offices and setting up a Research and Statistics Department in the Pirates Arms building, before an increased need for space and security led to the new Central Bank building opening in June 1984.

The chief macro-economic objective of the Bank during the rapid economic growth of the later 1980s was to secure a measure of external balance and uphold the liberal payment system. Monetary policy was given the leading role in supporting external accounts and preserving confidence in the rupee.

But, in spite of the government’s commitment to upholding fiscal discipline, maintaining a balanced fiscal position was not easily achieved and the Bank’s overdraft facility was frequently used. The government’s increasing indebtedness to the Bank continued through the 1990s and led to a number of economic distortions that eroded the credibility of the Central Bank.

In a bid to restore confidence in the institution, work began in 2002 on an updated Central Bank Act, designed to enhance the Bank’s independence and reassert the role of monetary policy with regard to the fiscal stance of the government.

In December 2004 the National Assembly enacted the Central Bank of Seychelles Act, repealing the previous legislation and granting the Bank the powers and independence under which it operates today.

Today the latest transformation of Seychelles’ economy, the rise of the financial services sector, presents a fresh challenge for the Central Bank – that of safeguarding the jurisdiction’s reputation and regulatory framework, and working to achieve an attractive investment climate compliant with the highest international regulatory standards.

The Central Bank today

With the recent economic reforms the Central Bank has entered a new phase of operation, one which reduces its direct involvement in the economy and repositions it as an overseer, ensuring that the free market reforms best meet the needs of the people of Seychelles.

The Central Bank Act of 2004 was amended in a session of the National Assembly on October 31 that removed the Bank’s control of the exchange rate and allowed the rupee to float freely against other currencies. But as the free market takes on the role of establishing the exchange rate, the Central Bank is able to use other monetary instruments to attempt to direct the course of Seychelles’ economy.

The Central Bank Act establishes seven key objectives for the Bank. Although the recent amendment has removed the Bank’s control of the exchange rate, its core objectives remain largely unchanged and are:

. To regulate the issue, supply and availability of money;

. To promote price stability and the maintenance of both domestic and external value of Seychelles’ currency;

. To advise the Government on banking, monetary and financial matters, and in particular on the monetary implications of proposed fiscal or credit policies or operations of the Government;

. To promote internal and external monetary stability;

. To promote a sound financial structure;

. To foster financial conditions conducive to the orderly and balanced economic development of Seychelles;

. To perform such other functions as may be assigned to the Bank by any law.

 
How it works

As an independent statutory body, the Central Bank is granted autonomy by the Central Bank Act of 2004, which makes the Bank and its staff accountable to the board of the Central Bank and free to operate away from any political influence.

The members of the board of the Central Bank – who are appointed to six-year terms of office by the President – are currently Errol Dias, Wilfred Jackson, Francis Chang-Sam and Jean Weeling-Lee, as well as the Bank’s governor Pierre Laporte and deputy governor Jennifer Morel.

The function of the Bank is split into a number of key divisions:

Banking Services Division:

The Banking Services Division is subdivided into the Banking Section, Currency and Numismatic (Coins) Section and Public Debt Section, which between them manage the Bank’s accounts with the government, commercial banks and other agencies, issue currency and sell coins and administer the sale of government securities such as treasury bills, treasury bonds and government stocks.

Financial Services Supervision Division:

The Financial Services Supervision Division regulates the activities of all financial institutions, such as bureaux de change and commercial banks, operating in Seychelles, to protect the financial stability and reputation of the country by protecting depositors’ interests and promoting a financially stable banking system.

Monetary Analysis and Statistics Division:

Split into the Economic Analysis and Research Section and Statistics Section, this Division of the Bank conducts economic analysis of the various sectors of the economy, generates data and provides advice on formulating monetary policy.

Securities and Financial Markets Division:

This new division has been created to oversee the workings of Seychelles’ rapidly expanding international finance sector and provide regulatory control and guidance to firms dealing in products such as mutual funds and international insurance. It will supervise the fledgling Seychelles stock exchange when it opens.

Feature sponsored by the Central Bank of Seychelles

Central Bank governors

Over the last 30 years the Central Bank has been led by five different governors, each of whom helped shape the Bank and enabled it to adapt to changes in both the domestic and international economy.

The governors of the Central Bank and their periods in charge were:

Guy Morel (January 1983-July1991)

Aboo Aumeeroody (September 1991-April 1995)

Norman Weber (July 1991-September 1991/ May 1995-April 2001)

Francis Chang-Leng (May 2001-October 2008)

Pierre Laporte (October 2008 to present)