Le rôle de la banque centrale (document en anglais)

3.1 Objectives of Central Banks

The role of central banks in microfinance is related to their broader role in the

financial system and in the economy more generally. Hence, any discussion of the

role of central banks in microfinance must be informed by the debates that have

taken place in recent years on their broader role and objectives.

Central banks have a number of objectives, which Chandavarkar (1996) has

classified as follows:

(i) tactical or macroeconomic objectives (relating primarily to the domestic price

level and the exchange rate);

(ii) long-term strategic objectives of financial sector development (including the

development of an effective payments system and other forms of financial

infrastructure); and

(iii) sectoral or microeconomic objectives (such as prudential supervision and deposit

insurance).

The goals of monetary policy include economic growth, low inflation, and stability of

the currency. However, most commentators now believe that the main contribution

that monetary policy can make to economic management in the long run is to maintain

low inflation. It is generally agreed that low inflation provides a necessary base for

sustained economic growth and development. Indeed, in a number of countries, low

inflation has proved important for the development of a sustainable microfinance

sector. In some cases governments have set indicative inflation targets, with central

banks expected to maintain the rate of inflation within a target band. It is also generally

accepted that central banks are most effective in maintaining low inflation and in

performing their other proper functions when they are independent of government.

There has been a trend in a number of industrial countries recently to divide

the functions of the central bank between two separate agencies. In this model, the

central bank proper retains responsibility for the conduct of monetary policy, stability

of the financial system, and regulation of the payments system. A new bank

supervision agency is established to undertake prudential regulation and supervision

of deposit-taking institutions.

However, so far at least, this model has not been adopted to any extent in

developing countries of Asia. In all but one of the countries included in this study, the

central bank retains responsibility for both monetary policy and prudential regulation

and supervision of the banking sector. The exception is Indonesia, where

3 Role of Central Banks

Central banks act

in the broader

financial system

and in the macro-economy

Contemporary Thinking on Central Bank Objectives

For most contemporary commentators, central bank objectives should

include:

• macroeconomic stability, relating to domestic inflation and the

foreign exchange rate

• longer term considerations of financial sector development

• immediate issues of the sound management and financial health of

financial institutions

Central banks in

DMCs retain their

regulatory and

supervisory

functions.

Indonesia is the

only exception

responsibility for prudential supervision of licensed financial institutions is to be

transferred from the central bank to a separate supervisory agency by the end of

2002.

3.2 Developmental and Promotional

Activities of Central Banks

A more important issue for the purposes of this study relates to what may be called

the “developmental”activities of a central bank. How central banks see these activities

depends to some extent upon the level of maturity and development of each financial

system. According to Chandavarkar, “In the early days of the central bank the accent

has necessarily to be on the development of a banking system to control because this

is not only a logical order but also the typical historical sequence…”(1996, 95).

Reference to the relevant legislation, or to the official “mandate”of a central

bank, may not be very helpful as a guide to the character of its current activities. Such

legislation tends to be changed infrequently and at long intervals; the actual activities

of the bank may diverge from the legal situation increasingly over time.

In this context, Chandavarkar makes the distinction between “develop-mental”and “promotional”functions of a central bank. He argues that the exercise of

developmental functions is justified, if at all, only in the very early stages of central

banking. These functions

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