The Central Bank, which is established by Article 213 of the Constitution of Zambia is mandated to issue the currency of the Republic, determine the monetary policy, and regulate banking and financial services, banks, financial and non-banking institutions. The enactment of the Bank of Zambia Act. 5 of 2022 brings with it an enhancement of the role of the Central Bank as highlighted by the Constitution.
The Act also introduces new provisions relating to the office of Governor and Deputy Governors, emoluments and other conditions of service for the staff of the Bank, and other provisions incidental to the objectives of the Central Bank. This Article will discuss the changes introduced to the Bank of Zambia Act No. 5 of 2022, with a focus on the provisions aimed at enhancing the autonomy of the Bank as it discharges its role of formulating and implementing monetary and supervisory policies, directed at achieving and maintaining price and financial stability.
Monetary Policy Committee
The Central Bank’s role in relation to the maintenance of price and financial stability is not new and was already explicitly recognized in the previous Act. This role is retained in section 5 of the Act. However, the new Act has enhanced provisions relating to this role, notably the establishment of the Monetary Policy Committee (MPC) and the Financial Stability Committee (FSC) in sections 27 and 31 of the Act respectively.
Previously, the MPC existed as a committee of the Bank with 8 members, all of whom were members of staff of the Bank. The composition of the MPC is now provided for by law as being the Governor as chairperson, the Deputy-Governors, one person appointed by the Minister [of Finance], two persons appointed by the Board and three members of staff in senior management position appointed by the Governor. The members of the MPC that are appointed by the Minister and the Board should not be members of staff of the Bank, members of the Board or public officers.
The MPC is mandated to formulate the monetary policy of the Republic, which is to be implemented by the Bank in order to achieve and maintain price stability. The formulation and implementation of the monetary policy shall be conducted autonomously and the MPC shall regulate its own procedures.
Financial Stability Committee
Although financial stability objectives are not new to the role of a central bank, the 2008/2009 financial crisis was a great reminder that price stability alone was not sufficient to guarantee financial stability. Many central banks adopted explicit financial stability objectives in response to the financial crisis, soyoung Kim and Aaron Mehrotra, Maintaining price and financial stability by monetary and macroprudential policy – evidence from Asia and the Pacific, BIS Papers No 88. Although the previous Act did include financial system stability as one of the functions of the Bank of Zambia, the establishment of the FSC under section 31 of the Act is a very progressive step in this regard.
The FSC is mandated to formulate the macro-prudential policies of the Republic on behalf of the Bank and publish, at least once a year a Financial Stability Report. The section further provides that the committee shall conduct the formulation and implementation of the macro-prudential policies autonomously and without any influence and will further regulate its own procedure.
