The pivotal role of the Central Bank of Djibouti.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This approval can be withdrawn when an institution encounters difficulties that might endanger the interests of its customers.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.
Shortcomings discovered by these controls are dealt with according to the seriousness of the infringement. A simple verbal exchange with the managers of the financial institution can resolve minor problems, but in more serious cases a warning letter is issued and an injunction can even be served resulting in a temporary or permanent ban.
Turning to the Central Bank's technical role, it takes responsibility in centralising and disseminating financial and economic data, some of which is commercially sensitive and strictly confidential. It strictly never divulges any market-sensitive information or comments on individual institutions.
All investigations undertaken by the Central Bank, as part of an internal control or in situ, are strictly confidential and are shared with the managers of the institutions and the relevant departments of the Central Bank.
However, more general information and statistics on the country's fiscal position is collated and released by the Central Bank, including data relating to the money supply, bank deposits and lending, balance of payments etc.
Consequently, the Central Bank is required to publish regular and relevant economic studies, collecting and disseminating information to all development partners and stakeholders.
Primarily, this guarantees the security of banking activities in the country. For example, all bank loans above FDJ3m ($17,000) are systematically integrated into the Central Bank's risk analysis, and all payment defaults are entered in a central record of non-performing loans.
Another important area of the Central Bank's technical role is the Compensation Chamber. All of the financial institutions' operations and the activities of the National Treasury (represented by the Central Bank) are cleared on a daily basis at the Compensation Chamber, which debits or credits the institutions' current accounts at the Central Bank.
In addition, the Central Bank takes the lead in relations with international financial institutions. As the fiscal agent of the State, the Central Bank is the main contact for bodies such as the IMF and the World Bank, with whom it develops technical and financial assistance programmes on behalf of the Republic of Djibouti.
Djama M Haid, the Governor of Djibouti's Central Bank, defines the institution's role as involving two main areas