This opinion piece seeks to determine the extent to which the new Bank of Namibia Act 1 of 2020 (the Act) imports neoliberal central banking rules as well as the degree of divergence, if any, from traditional central bank mandates enshrined in law. The piece also emphasises the attempt to domesticate the Southern African Development Community (SADC)’s Central Bank Model Law, Namibia being one of the first countries in the SADC region to do so.
Many countries establish central banks when they achieve independence, and this was no exception for Namibia in 1990. The Namibian Constitution provides for the establishment of a central bank. As a result, the Bank of Namibia (‘the Bank’ or ‘BoN’) was founded immediately after independence by the passage of the Bank of Namibia Act 8 of 1990, repealed in 1997 and again changed in 2004. The freshly enacted Bank of Namibia Act 1 of 2020 recently removed the latter laws.
Independence of the central bank
An examination of the Act reveals a fusion of traditionalism with neoliberalism. The law is largely based on the SADC model law for central banks; it imports regionalism through the harmonisation of laws of the sub-region.
A key improvement in the Act is that it fortifies the independence of the Bank by imposing a criminal sanction. The Act also demands ultimate transparency and accountability. Central bank independence constitutes a core element of modern central banking law. More importantly, it forms a key part of neoliberalism theory. This is traditionally evident in the central bank’s monetary policy formulation role, where the Bank has autonomy. While maintaining independence, there are some circumstances where consultations with the Minister of Finance are essential, such as the appointment of Governors and non-executive independent directors.
However, it appears that the legislator’s intention is to keep the Bank free from undue interference. This is in keeping with the neoliberalism and modern central bank orthodoxy, which seeks to shield central banks from the executive branch of government and the vagaries of politics. The engagement of the Board in the appointment of Governors encourages adherence to such orthodoxy, and aims to depoliticise the appointment of the institution’s most senior executive. The Governor serves as the chair of the Bank’s Board of Directors and as its Chief Executive Officer. The duality of this function is attributed to the sui generis (unique nature) of a central bank. The dismissal of the Governor and Deputy Governors is only permitted in specific circumstances, including incapacity and gross misconduct, and the procedure is provided in the law itself. This procedure strengthens the central bank’s independence as the Governors are shielded from whimsical and arbitrary termination from their positions.
Expansion of the BON mandate
The objectives and the functions of the Bank have been expanded, the object being to promote monetary and financial stability. Stabilisation, both in terms of price stability (i.e. monetary stability) or financial stability, is a key component of neoliberal economic theory in central banking. The functions have been expanded, and now allow the Bank to lead the development in the banking sector. This developmental role is a departure from mainstream consensus.
Furthermore, the Bank now has the function of macroprudential oversight over the financial sector, which is a crucial introduction in the Act. This means that the Bank now has an eagle’s view over Namibia’s banking and non-banking financial sector (insurance companies, pension funds, asset managers, stock market, etc). The Bank is currently in charge of coordinating activities aimed at ensuring Namibia’s financial stability. In doing so, the Bank has the authority to issue directives regarding macro-prudential matters and the coordination of activities involved in the safeguarding of financial stability after consulting with the Namibia Financial Institutions Supervisory Authority (NAMFISA), as well as to ensure compliance with the directives. The Act also authorises the Bank to manage system-wide financial crisis events in collaboration with the Minister and NAMFISA, with the goal of stabilising and restoring trust in the financial system, among other things. Because of the potential of contagion or systemic risk, this provision is critical.
This mandate for financial stability will be carried out by the Financial System Stability Committee, which will be led by the Governor and include representatives from the Bank, NAMFISA and the Ministry of Finance. The Financial System Stability Committee is now a statutory committee.
Monetary Policy Committee
The composition, structure and functions of the Monetary Policy Committee (MPC) are all clearly stated. Members of the MPC must have expertise and experience in monetary policy, and be persons of integrity, competence and sound judgement. A new introduction is that the Governor may appoint a mix of internal staff members and non-staff members to the committee subject to Board approval. The Board approval serves as a check on the powers of the Governor, and provides credence to the committee and monetary policy formulation.
The conventional functions of the Bank such as currency design and issuance are clearly outlined, as well as the central bank’s role as the lender of last resort. The aim of this arrangement is to ensure sound financial stability, and to respond to banking sector liquidity challenges. Lender of last resort policies must have regard for the inherent moral hazard.
Given the importance of foreign reserves for Namibia, the new Act makes provision for the Bank and the Minister of Finance to agree on the measures to grow and build these reserves to an adequate level. The costs of growing the reserves following the measures agreed upon by the Bank and the Minister will be borne by the Government. Evident from the COVID-19 pandemic is the fact that international reserves cushion the economy against public health and other national crises.
A novelty in the Act is the requirement of the Governor to appear before the relevant standing committee of the National Assembly at least once a year to report on the operations of the Bank. This provision does not seek to diminish the independence of the Bank, but rather to improve transparency in the operations of the Bank. In contrast to neoliberals, John Maynard Keynes and his followers felt that the central bank should be subject to some form of democratic governance. Neoliberals, on the other hand, insist on delegating central bank activities to a committee of specialists or technocrats.
Namibia was among the first countries to transcribe and domesticate the principles outlined in the SADC Central Bank Model Law. This assessment of the Act reveals that it largely replicates neoliberal tenets in central banking while departing from them in some ways, namely that it gives the bank a developmental role in the financial sector and the economy, and secondly that it subjects the central bank to some form of democratic control through a positive obligation to report to the National Assembly. It seems clear that the Namibian parliament created a well-balanced and enabling legislative environment for the Bank of Namibia to support Economic Advancement, an aspiration contained in HPPII.
* Bryan Eiseb currently serves as the Director of Exchange Control and Legal Services at the Bank of Namibia. He writes in his personal capacity. The views expressed in this contribution are not necessarily those of his employer. This is an extract of an article recently admitted to an online symposium on Central Bank and Neo-Liberalism by AFRONOMICSLAW.