By Wezzie Gausi:
The Reserve Bank of Malawi (RBM) has embarked on an exercise of reviewing the RBM Act to improve the efficiency and effectiveness of the central bank.
The review is expected to incorporate developments that have happened since the current Act was enacted in 2018.
Once completed, the review will add provisions relating to financial stability functions, including establishment of a Financial Stability Committee.
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The review will also make provisions for procedures and timeframe for conducting an inquiry into the removal of a director and matters on which RBM can issue directives, rules and guidelines and eligibility criteria for appointment of directors of the bank.
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In an interview, RBM spokesperson Mark Lungu said the review is happening in order to address challenges identified during the past five years.
He said through the amendments they are trying to make to the RBM Act, clarify terms used in the Act by providing for their definitions.
“For example, we are introducing the definition of the term fit and proper, which is used in the Act, provisions relating to the sorting and issuance of currency, powers and functions of the bank as they relate to the objectives of the bank,” Lungu said.
Further, Lungu said the revision of the Act has also been necessary as they wish to provide for other forms of currency as legal tender in Malawi, including electronic money, and provide for additional offences relating to banknotes and coins; and correct errors and inconsistencies in various provisions in the Act.
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Economics Association of Malawi (Ecama) President Bertha Chikadza said monetary policy and financial stability are dynamic domains that have continually evolved to meet the changing needs of economies worldwide.
She said the proposed review of the RBM Act is a timely and necessary measure to ensure that the bank’s functions remain responsive and effective in addressing the current needs of Malawi’s economy.
“Such reforms are crucial for adapting to the complexities of modern financial systems and for safeguarding against potential risks.
“Since the financial crisis of 2008, most central banks have focused on increasing the number of commercial banks and building societies financial resources (capital) which they set aside to act as a shock absorber for bad times.
“For example, in other countries this committee has a purpose of macro-prudential supervision which aims at limiting systemic risks and strengthening the resilience of the financial system in a preventive manner,” Chikadza said.
Commenting on the development, Scotland-based Malawian economist Velli Banda said the revision of the RBM Act is a positive step.
He said the ever-changing economic landscape necessitates continuous evaluation of financial regulations to maintain stability.
“A dedicated Financial Stability Committee would be a valuable addition. This committee could focus on analysing potential risks within the financial system, identifying vulnerabilities in banks and institutions, monitoring economic trends, and recommending preventative measures,” Nyirongo said.
Another economist Marvin Banda said RBM plays a vital role in ensuring that the economy functions optimally.
“Establishing a Financial Stability Committee will be beneficial because it fills an important gap where current monetary policy fails to touch.
“The Financial Stability Committee would monitor and evaluate risks in the financial system which could aim to demystify the role of financial frictions in achieving steady state economic growth,” Banda said.
Meanwhile, RBM has said the expectation is that the bill, once enacted, will improve the efficiency and effectiveness of the bank in the performance of its mandate, maintaining price and financial stability.
Currently the actual review has been done and RBM hopes that the amendments will be in effect by the end of the year after going through the due processes.
