The Pivotal Role of the Central Bank of Djibouti

Article excerpt

The last in years, Djibouti's economy has rapidly evolved. The country has experienced a significant expansion of its banking industry, and the formation of specialist financial institutions. To provide the best support for this expansion, an extensive evaluation programme was undertaken leading to a general overhaul of existing legislation.

As a result, the Central Bank now not only monitors the money supply, in order to control inflation, but supervises the various financial services crucial to a modern nation-state.

The role of the Central Bank can be defined in two broad but interlinked areas: monetary regulation and technical oversight. As far as monetary regulation is concerned, the currency is a potent symbol of the unity and sovereignty of the state, and the issuing of the national currency as legal tender is solely the Central Bank's prerogative. The Central Bank is required to issue notes and coins in sufficient quantity and quality for the economy to operate smoothly. It also manages the currency reserves to guarantee the value of the Djibouti Franc, which is fully convertible and pegged to the world's primary trade currency, the US dollar.

Furthermore, the Central Bank is tasked with monitoring the money supply, ensuring the Djibouti Franc's stability and the efficient functioning of the banking and financial system. While the Central Bank is independent of political control, it always assists in the implementation of the government's economic policies.

The Central Bank's responsibilities also extend to hosting the National Treasury accounts for which it provides all related financial services: portfolio management, collections and payments. However, the Central Bank is prohibited from extending any overdraft or credit facility to benefit the National Treasury.

Furthermore, the Central Bank supervises all financial institutions that it authorises to operate in the country. This approval relates to the conditions of incorporation, the suitability of the institutions' managers as well as the financial activities that are undertaken. Whether the bank is conventional or Islamic, investment or retail, in micro-finance or brokerage, it is under the supervision of the Central Bank regarding finance, credit or deposit activities.

This approval can be withdrawn when an institution encounters difficulties that might endanger the interests of its customers.

The mission of the Central Bank is also to prevent the risk of defaults. It has a number of tools to monitor and control all financial activities and it constantly checks the reporting that the financial institutions are required to provide at regular intervals. …