AMENDED CENTRAL BANK LAW IMPOSES CHECK AND BALANCE
Since the overwhelming passage of the Central Banking (Amendment) Act 2021 in December session of Parliament, public debates on this subject have made headlines on both traditional and social media. The amendments were made based on a prior consultation and report compiled by Independent Advisory Group, a something which is critical for the vibrancy of our democracy. IAG comprised of key industry players including the Governor for the bank.
The amended law governing the Central Bank of Papua New Guinea has attracted mixed reactions from elites, unions, politicians and ordinary citizens. Others have their own opinions but have remained silent due to reasons known to themselves. We believe these concerns which could have been submitted in writing to IAG if opportunities were presented to them to contribute. It was well published on local media that IAG was established with clear Terms of References (TOR).
We have analysed the contents of their debates on public domain and, learnt that some debates are not genuine and are aimed at achieving vested interests.
We, as an online news agency, feel obliged to join the debate, putting everything into right perspective. We have received written debates in its favour or otherwise. We also read about it in various platforms. We cannot allow this to go on with the kind of energy and passion shown by individuals.
WHY AMENDMENTS WERE NECESSARY?
The shortage of forex supply has gone on for years affecting international trade. Most of our wholesalers and retailers were affected big time in loss of customers and sales revenue impacting net profits. Foreign currencies were rationed to preferred companies and individuals. Individuals at the helm of BPNG have compromised their stance on issues affecting the country (i.e. UBS Loan, LR Group payment etc..).
The law was amended with good intentions. Sections repealed and amended are 10 ‘Responsibilities for formulation and implementation of monetary policy,’ 11 ‘Policy Statement,’ 14 and 14A ‘Liaison between the Central Bank and the Department responsible for Treasury matters,’ 15 ‘Governor,’ 26 ‘Functions of the Board,’ 27 ‘Member of the Board,’ 28 ‘Term of Office of Members of the Board,’ 32 ‘ Meetings of the Board,’ new sections inserted 34A ‘Audit and Risk Committee, 34B ‘Governance Committee,’ 34C ‘Budget and Investment Committee,’ 44 ‘Annual Report and Accounts,’ 55 ‘Advances to the Government’ and 58 ‘Official Value of Monetary Unit.’
We are not going to discuss all of them. However, we will reduce our scope on those amendments which stirred up controversies surrounding the amendments.
The amendments were long-overdue and necessary to modernise and strengthen the independence of the bank. The change imposes greater check and balance on the bank’s governance and management.
INTENTIONS AND OBJECTIVES
The intention of the amendments was noble and has amplified the bank’s core functions and objectives;
1. To formulate and implement monetary policy which a view to achieving and maintaining price stability and promoting employment and economic growth especially of the non-mineral and non-petroleum sector (i.e. Foreign Reserve);
2. To formulate financial regulation and prudential standards to ensure stability and development of the financial system in PNG (i.e. interest rates and cost of borrowing and lending)
3. To promote and efficient national and international payment system (i.e. Forex); and,
4. To promote efficient and responsive banking services to the Government (Treasury Bills and Inscribe stock trading to meet Government cash flow issues).
IMPLICATIONS OF THE LAW
Political interference and erosion of bank’s independence, erosion of financial and investor confidence, credentials of board members, high inflation fears and increased money supply (Section 55) are consequences that are concerned.
Our position differs from these concerns. Generally, we agree with the Treasury Ministry or the Government that the amendments were aimed at diluting authority from one person (Governor of the Central Bank) to a bigger voice (9-member board). The change ensured transparency and accountability. It will no longer be one-man show. It amplified and strengthened independence of the bank. It will create a new equal playing field for BPNG and its competitors unlike before where more than 90 percent of treasury bill and inscribed stock trading was facilitated by BPNG only, as a regulator of monetary policy.
On erosion of financial and investor confidence fears, the amended law will now strike a balance between price stability and economic growth. Reopening of Porgera Mine and other new projects will neutralise these fears.
Clarifying on high inflation fears and increased money supply, printing more money doesn’t increase economic output. The quantity of cash circulating in the economy increases. Printing more money is good for employment creation. It depends mainly on the availability of goods and services. When wholesalers and retailers have the capacity to meet the demand of goods and services induced by printing more money, inflation can be cushioned. To produce that goods and services, they will need extra manpower; thus, creation of employment. In economics, inflation and unemployment are twin evils. When the Government intervenes to control one, the other goes out of hand. Such is true for this case. No one is going to perform miracles here because it has been designed that way.
Despite the fact that many of the board members lack economic qualifications, they possess good moral standing and professional experience. Whether to be manipulated or not depends entirely on personalities and values of individuals. Laws are there to protect them. Politicians are cautious of this.
We commend the amendments made to the law. We hope that we have put everything into right perspective to ensure everyone is well informed.