MPs Begin Discussing Bill Boosting Central Bank’s Capital

ADDIS ABABA – Lawmakers have today begun discussing a newly drafted legislation that enables Ethiopia’s Central bank to raise its capital and introduce digital currency.

The draft National Bank of Ethiopia (NBE) proclamation was tabled at the parliament a week after its approval by the Council of Ministers.

The current proclamation has been serving for sixteen years without changes which, authorities say, has created administrative and regulatory gaps.

This has been affecting the NBE’s capacity to effectively maintain price stability and ensure sound monetary system for rapid economic growth.

The proclamation is now being amended, taking into account the current and future level of development and policy direction.

“The draft law is prepared to redefine the powers and functions of the Bank to enhance its regulatory competence,” Government whip Tesfaye Beljige told members of the parliament.

It also targets enhancing the central bank’s credibility, accountability, transparency and governance in line with best international practice, Tesfaye added.

The newly drafted Proclamation is a part of the bank reform agenda as indicated in its strategic plan.

The draft National Bank of Ethiopia proclamation has 9 parts and 56 chapters.

NBE says it sets hierarchy to the Bank’s monetary policy objectives and to choose appropriate monetary policy instruments to achieve its goals.

The bill enables the Bank to set price stability target in consultation with concerned government entities. defines the role of macro prudential policy formulation on risk management of the financial sector; and sets clear legal basis for financial services consumer protection.

It establishes a Monetary Policy Committee to ensure the quality and effectiveness of its monetary policy, and a National Financial Stability Committee to ensure the soundness of the financial sector.

Other Key policy changes include

Raising NBE’s capital to 20 bln Birr

The bill proposes a significant increase to the National Bank’s capital which currently sits at 500 million Birr. The amount is significantly low as compared to the capitals of the central banks of other countries, the bank says.

Its newly prepared law proposes a significant increase to the current capital.

The bill says the authorized capital of the National Bank is 20 Billion Birr of which the minimum paid-up capital is 10 Billion Birr. The capital of the National Bank shall be totally owned by the Government, it adds.

Increasing NBE Board of directors

The bill defines the number, composition, tenor and eligibility criteria for members of the NBE Board directors.

It increases the number of directors from the current 7 to 9 with a view to fill in the chairmanship posts that will open up when the board establishes the newly proposed committees.

Appointed by the prime minister, the Governor and vice Governor will serve for a term of six years each. Both may be reappointed for one more term in office, per the draft proclamation.

The Governor and vice Governor will sit in the board that will have a chairperson and six non-executive directors as members each serving for a six year term.

Determines NBE-Govt Relations

The draft proclamation determines the Bank’s relationship with the government particularly in terms of the amount of government borrowing and modalities of loan repayment which are not explicitly stated in the existing legislation.

Per the bill, the NBE may provide temporary overdrafts on a Cash Flow Facility for the Government for duration no longer than 12 months. These overdraft facilities shall not exceed 15% of average annual general government domestic revenue of the previous three fiscal years.

Such temporary shall be repaid upon its maturation with interest calculated at monetary policy rate and shall not be rolled-over, per the draft proclamation.

It also restricts the National Bank not to make further overdrafts in a subsequent financial year, if the repayment is not made, except in the event of a force majeure.

Central Bank Digital Currency

The newly drafted law establishes a legal framework for introduction of CBDC, as necessary. It says the National Bank may issue Central Bank Digital Currency as a legal tender of the country.

The NBE Board may issue a Directive for the operation of Central Bank Digital Currency, per the draft law.

This will pave the way for Ethiopia to adopt the currency as an option to promote financial inclusion and improve the efficiency of cross-border payments.

The draft NBE proclamation has been referred to the parliamentary committee for review and comment before its second reading at the house for final ratification.

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