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Research Paper: A Brief History of the Central Bank of Seychelles
A Brief History of the Central Bank of Seychelles
1.0
Financial Secretary, acting as Currency
Introduction
The Central Bank of Seychelles was
Commissioner.
inaugurated a little over 25 years ago but has
its roots going as far back as seventy years,
This set-up was later updated in 1974 with
with the establishment of the Seychelles
the enactment of the Seychelles Currency
Currency Board in the mid-1930s. Since its
Ordinance, under which, the issue, re-issue
inception the organisation has evolved
and redemption of currency became the
greatly, undergoing extensive changes in not
responsibility of a Board comprised of the
only the way it operates but also in its policy
Financial Secretary and the Accountant
objectives.
General. One important change relative to
the previous set-up was that the colonial
This short paper traces the evolution of the
government granted the Board the authority
Central Bank from the days of the currency
to hold and manage all the domestic and
board, when the Seychelles was a British
foreign assets of the country. The Board
colony, to the present time, where the
however did not have the power to
Central
undertake monetary policy; the issuance of
Bank
has
operational
and
domestic currency was constrained by the
institutional independence.
requirement that each issue be backed by
2.0
foreign currency. A fiduciary issue of not
The Seychelles Currency Board
As with other British colonies of the time,
more than 30 per cent of total issued
the financial system of the Seychelles during
currency was however possible, with the
th
the 20 century was overseen by a currency
caveat being that the issue had to be backed
board. The Seychelles Notes Ordinance and
either
the Coinage Ordinance of 1936 bestowed
guarantee.
the
and
domestic currency, the Seychelles Rupee,
redemption of Seychelles currency on the
was pegged at a fixed rate of R13.33 to the
Colonial Secretary and later, with the
Pound Sterling.
responsibility
for
the
issue
Source: Central Bank of Seychelles
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XXXIV- -
by
government
securities
or
As with other colonies, the
Research Paper: A Brief History of the Central Bank of Seychelles
As noted earlier, the Seychelles Currency
Seychelles government to study the financial
Board had no policy responsibility and
system and recommend any improvements.
operated along strict procedures laid out by
the government and as such had limited
On the recommendations of the IMF the
scope in influencing the domestic economy.
decision was taken to create a central
The Financial Secretary would undertake an
banking institution.
interest rate policy which would shadow that
rudimentary structure of the financial system
of the UK. The Board did not act as banker
and the lack of local expertise, it was
to the government or commercial banks. It
decided that, as an interim step, a monetary
did not provide the “lender of last resort”
authority be set up, with the establishment of
guarantee nor did it supervise the banking
a fully fledged Central Bank planned for a
sector
later date.
or
impose
any
prudential
However, given the
requirements on the latter.
On December 1, 1978, the Seychelles
3.0
The Seychelles Monetary Authority
Monetary Authority was established under
The accelerated growth of tourism in the
the Seychelles Monetary Decree, 1978. All
seventies brought about a rapid expansion in
the responsibilities, as well as the assets and
the domestic banking sector, which in turn
liabilities of the Currency Board were
exposed the weaknesses of the Currency
transferred to the Authority. The objectives
Board. With the Board having no mandate
of the Authority as specified in the Decree
to undertake monetary policy, adherence to
were:
a fixed exchange rate regime, implied that
the domestic money supply would fluctuate
according to the flows of external capital.
This situation was understandably not
conducive
to
stable
economic
development.
and
sustainable
There
was
therefore a pressing need to establish an
institution
capable
of
managing
the
monetary aggregates with the ultimate end
of influencing and stabilising economic
activity.
This
was
affirmed
by
an
International Monetary Fund (IMF) mission
team which, in 1976 was invited by the
Source: Central Bank of Seychelles
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1. to regulate the issue, supply and
availability
of
money
and
its
international exchange;
2. to advise government on banking
and monetary matters;
3. to promote internal and external
monetary stability and a sound
financial structure;
4. to
fosters
conducive
financial
to
the
conditions
orderly
and
balanced economic development of
Seychelles.
Research Paper: A Brief History of the Central Bank of Seychelles
Under the Decree, the Authority was
banks; and creating banking relationships
empowered with the necessary tools so as to
with banks abroad. The responsibility for
enable it to achieve the above objectives.
the collection and compilation of monetary
These included (but were not limited to) the
and banking statistics was transferred from
issue of currency, the management of
the Government Statistics Office to the
external reserves, the provision of banking
Research Department of the Authority. The
services to government and commercial
Authority also began to compile Balance of
banks, the provision of short-term advances
Payments statistics. It also took over the
to government and commercial banks, the
handling of the IMF accounts and Reserve
inspection of banks and other financial
Tranche position from the Treasury.
institutions, the imposition and regulation of
The most
In February 1979, the administration of the
significant difference with its predecessor
Banking Ordinance 1975 and the Banking
was that the Authority was given the
(Special
responsibility for monetary policy, thus
transferred from the Registrar General to the
enabling it to set monetary instruments such
Monetary Authority. Barely three months
as interest rates and credit controls to
later, the Authority had to deal with the
achieve
objectives.
liquidation of the Seychelles Commercial
However, the 1978 Decree provided for a
Bank, a locally incorporated bank. It acted
Board of Directors comprising of three
quickly, protecting depositors and ensuring
members; one of whom was the Permanent
that the liquidation process was performed
Secretary of Finance; another being the
in strict accordance with the laws and
Accountant-General; and the third being any
regulations in force.
person as may be appointed by the
months after its inception, the establishment
President. This provision ensured that the
of a central monetary institution proved to
Authority worked in close association with
be a wise undertaking.
cash reserve requirements.
certain
desired
Provisions)
Act
1976
was
Thus, less than six
the Department of Finance rather than
operating independently.
4.0
The Central Bank of Seychelles
As mentioned previously, the Seychelles
Upon
establishment,
the
Seychelles
Monetary Authority was intended to only be
Monetary Authority quickly embarked on an
a
ambitious work programme; setting up the
experience and know-how of the domestic
necessary
accounting
and
financial system, before being transformed
procedures;
opening
the
into a fully-fledged Central Bank.
systems
accounts
for
government, certain statutory bodies and
Source: Central Bank of Seychelles
pro
tempore
institution,
gathering
Thus,
with some minor adjustments, the SMA
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Research Paper: A Brief History of the Central Bank of Seychelles
Decree 1978 was turned into the Central
has greatly evolved whilst maintaining its
Bank of Seychelles Act 1982, which was
critical role in the economy.
approved by the People’s Assembly on
December 29, 1982. On January 1, 1983,
In the early years of its existence, the Bank
the
was
successfully managed to wield the necessary
officially inaugurated, with the simultaneous
influence in order to curtail the damages to
dissolution of its precursor, the Seychelles
the country’s productive base as the
Monetary Authority.
domestic economy expanded. As economic
Central
Bank
of
Seychelles
growth gathered momentum in the second
As with its predecessor, the newly-formed
half of the 1980s, the chief macroeconomic
Central Bank functioned in two buildings.
objective of the Bank was to secure a
The main office occupied a section of the
measure of external balance and uphold the
second floor of Liberty House and currency
liberal payment system.
verification and destruction was carried out
was given the leading role in supporting the
in one room on the first floor of the same
external accounts and preserving confidence
building.
in the Rupee.
Banking
transactions
were
Monetary policy
Despite the government’s
conducted over the ground floor counters,
commitment towards maintaining fiscal
which were shared with Treasury, while the
discipline, the attainment of a balanced
currency stocks were held in one strong
fiscal position was not easily or consistently
room on the ground floor and in two other
achieved. Given this fact, government often
rooms in the basement of Liberty House. As
made use of the overdraft facility from the
for the Research and Statistics Department,
Bank to finance its budget deficits.
it occupied the top floor of the three-storey
increasing indebtedness of the government
Pirates Arms building. This set-up was not
to the Central Bank continued through into
appropriate for the efficient operation of an
the 1990s, leading to major economic
institution of high importance such as the
distortions, most visible in the monetary and
Central Bank.
external sectors in the form of chronic
Furthermore, the pressing
need for a more secure and spacious
shortages
currency vault lead to the erection of the
credibility of the Central Bank started to be
Central
eroded as the institution was seen merely as
Bank
building,
which
was
in
foreign
exchange.
The
The
an extension of the Ministry of Finance,
inaugurated in June 1984.
with monetary policy having been relegated
During the twenty odd years of its existence,
towards accommodating the fiscal stance of
with growing experience and an increased
government.
number of qualified manpower, the Bank
Source: Central Bank of Seychelles
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Research Paper: A Brief History of the Central Bank of Seychelles
In 2002, conscious of the need to restore
4.
confidence in the institution, the Bank, in
consultation with the IMF, commenced
monetary stability;
5.
work on updating the Central Bank Act and
in December 2004, the National Assembly
to promote internal and external
to promote a sound financial
structure;
6.
to foster financial conditions
enacted the Central Bank of Seychelles Act
conducive to the orderly and
2004
balanced economic development of
thereby
repealing
the
previous
legislation. Under the previous legislation,
the Governor of the Bank also held the
Seychelles; and
7.
to perform such other functions as
position of Principal Secretary in the
may be assigned to the Bank by any
Ministry of Finance. This may have led to a
law.
certain degree of ambiguity in economic
policy decision-making as the Bank and
The Central Bank of Seychelles Act 2004,
government have different agendas. Under
formally
the new Act, the Governor of the Bank is no
institutional
longer allowed to hold the post of Principal
which will undoubtedly serve to enhance the
Secretary of Finance. Furthermore, a new
credibility
board of directors of the Bank was
domestically and internationally, placing the
appointed, constituting of directors from
Bank in a better position to tackle some of
both the private and public sector. The new
the major economic imbalances plaguing the
Act also explicitly sets out the objectives of
Seychelles economy and last but certainly
the Bank, which are:
not least, strengthen its role as financial
1.
2.
3.
provides
and
of
the
Bank
operational
the
Central
with
autonomy,
Bank
both
to regulate the issue, supply and
watchdog of the economy.
availability of money and its
experience in other jurisdictions has amply
international exchange;
demonstrated that bestowing legal autonomy
to promote price stability and the
on the Central Bank does not automatically
maintenance of both domestic and
enhance the institution’s credibility in the
external value of the Seychelles
community.
currency;
credibility has to be painstakingly earned
to advise the Government on
and in the context of central banking, this is
banking, monetary and financial
achieved through the quality, consistency
matters, and in particular on the
and objectivity of the Central Bank’s work,
monetary implications of
notably in the realm of economic policy,
proposed fiscal or credit policies
research undertakings, banking services and
or operations of the Government;
financial supervision.
Source: Central Bank of Seychelles
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However,
Like every noble value,