Central Bank of the Congo: Strengthening Financial Stability and Compliance

The Central Bank of the Congo plays a crucial role in maintaining financial stability and compliance in the country. It has implemented various measures to achieve this goal.

One key aspect is the bank's supervision and regulation of financial institutions, ensuring they operate within the law and maintain sound financial health. This includes monitoring their capital adequacy, liquidity, and risk management practices.

The Central Bank of the Congo has also taken steps to enhance financial inclusion, particularly in rural areas where access to banking services is limited. This includes the development of mobile payment systems and other innovative solutions.

By strengthening financial stability and compliance, the Central Bank of the Congo aims to promote economic growth and development in the country.

The Democratic Republic of Congo's economy has a complex history, but one thing is clear: it's been a rollercoaster ride since the early 2000s.

In 2001, the economy was in shambles, with triple-digit inflation, a decline in real GDP, and a collapse of the banking system. By 2002, the government had adopted a program monitored by IMF staff to stabilize the economy, which included a restrained budgetary policy and a floating exchange rate.

Real GDP growth was a staggering -3.9% from 1998-2001, but by 2002-2005, it had turned around to 5.6% annually. Inflation, which was a whopping 316.3% in 1998-2001, was brought down to a relatively manageable 12.6% by 2002-2005.

The exchange rate also improved, with the Congolese franc decreasing from 366.4 to 25.5 against the US dollar. However, the economy still had some issues, such as a low level of financial intermediation and increased monetization.

Here are some key economic indicators for the DRC from 1998-2005:

Fast forward to the present day, and the DRC's economy is still heavily reliant on the US dollar. In fact, only about 13% of everyday transactions are conducted in francs, with the majority of people using dollars. This dollarization dates back to the 1990s, when the country's economy was in a state of collapse, with inflation reaching an all-time high of 24,000%. Since then, the US dollar has been the dominant currency, with locals being paid in francs contributing to widespread poverty.

In early 2001, the Central Bank of the Congo (BCC) lacked operational independence in monetary policy, full supervisory authority, and a mandate to fight money laundering and the financing of terrorism.

Under Central Bank Decree-Law 187 of January 1999, the government played a key role in conducting monetary policy.

The BCC had no authority over bank licensing and regulation, and shared responsibility with the government for bank restructuring under the banking law of 1972.

Decree Law 065/1998 of 1998 established the Congolese Banking Restructuring Committee (COREBAC), a body composed of two government representatives and seven BCC staff, to manage the bank restructuring process.

The COREBAC was responsible for supervising the World Bank-financed audits of failed banks.

However, Congo had initiated the liberalization of the foreign exchange system, and under Decree Law 004/2001 of February 2001, the U.S. dollar became legal tender in the DRC, alongside the Congolese franc.

The Central Bank of the Congo (BCC) embarked on a second wave of reforms in 2001, focusing on enhancing its institutional and operational capacity.

These reforms aimed at building the BCC's financial infrastructure and support functions, as well as fostering financial reintermediation. The new reforms were drawn up in a multi-year action plan under which implementation was monitored annually.

The BCC decided in 2001 to focus on a narrow range of priority reforms to enhance institutional and operational capacity.

These reforms included financial legislation, foreign exchange operations and reserve management, monetary management, and supervision, all of which are core areas of the IMF’s work.

The BCC has played the major role in setting the reform agenda, with assistance from key development partners, including the IMF.

Taking the driver’s seat in the reform process allowed the BCC to focus on key areas in which capacity weaknesses had been identified.

Framing these reforms in a multi-year plan of action with a specific timetable for implementation, and updating this plan annually, has enabled the BCC to assess progress and to expand its reform agenda as new challenges emerged.

The transitional political setting influenced the pace of implementation of the reforms, slowing it down due to the need for continuous consensus-building among the five factions.

Skilled staff shortages were also a constraint on the pace of reform, with only 16 percent of the 2,000 BCC staff being university graduates in mid-2004.

The BCC embarked on a massive recruitment drive in 2006 to meet an acute need for skilled staff in operational and IT directorates.

The BCC Board included five representatives of the government, including the Board’s chairman.

In 2001, the financial system consisted of 14 banks, five nonbank financial institutions (NBFIs), and a myriad of savings and loans and micro finance institutions (MFIs).

Only 10 banks operated, but their intermediation role was negligible, with bank deposits and loans standing at 1.5 percent and 0.7 percent of GDP respectively in 2000.

The BCC was able to present the analytical version of its balance sheet only in 2005 due to various issues, such as acute human capacity shortages and statistical data weaknesses.

In 2002, Parliament passed several pieces of legislation to establish good practices, including a new central bank law that provided for the Central Bank of the Congo's (BCC) independence and gave it the mandate to formulate and implement monetary policy.

The main objective of monetary policy, as set forth by the law, is to ensure general price stability. This is crucial for maintaining economic stability and promoting growth.

A new banking law was also passed, giving the BCC full responsibility for the supervision of all financial institutions. This includes oversight of banks to ensure they are operating safely and soundly.

Here are the key pieces of legislation passed in 2002:

In 2002, Parliament passed several pieces of legislation to establish good practices in financial legislation. These laws provided the BCC with full authority over central bank policies.

A new central bank law, 005/2002, was passed on May 7, 2002, which gave the BCC independence and the mandate to formulate and implement monetary policy. This law also set forth the main objective of monetary policy, which is to ensure general price stability.

The new central bank law ended government representation on the Board and gave the private sector five seats. This change aimed to reduce government influence over the BCC's decision-making process.

A new banking law was also passed, giving the BCC full responsibility for the supervision of all financial institutions. This law is crucial in maintaining financial stability and preventing potential crises.

A new bank restructuring law expanded the BCC's authority over the management of bank restructuring. This law allows the BCC to take a more active role in resolving bank problems and preventing further instability.

Here are the key pieces of legislation passed in 2002:

The AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) reforms in this country were a significant step towards strengthening financial legislation and compliance.

In 2002, the BCC set up a committee to draw up a national strategy for AML/CFT, following the central bank law of February 2002 and a mandate from the government.

A key milestone was the adoption of an AML/CFT law by Parliament in July 2004, which aligned with international standards.

Enabling decrees, including a decree for setting up a Financial Intelligence Unit (FIU), have been prepared to support the implementation of the AML/CFT strategy.

High-level seminars were held in 2004 and January 2005, and a workshop was held in December 2004 to further advance the AML/CFT strategy.

The groundwork has been laid for the AML/CFT strategy, but a large remaining agenda still needs to be addressed, including the adoption of implementing decrees and the launch of the FIU.

The CDF 500, the highest denomination at the time, was equivalent to about $1, giving an idea of the local currency's value.

The Democratic Republic of Congo (DRC) made significant strides in audit reform, which is crucial for transparency in financial information and good governance.

External audits became a regular practice in 2002, with the Bank of Central African States (BCC) submitting its financial accounts to an internationally recognized audit firm. This firm also conducted special audits of quantitative performance criteria set forth under the IMF-supported program.

The BCC reorganized its internal audit function, focusing on onsite audit missions and delegating internal control activities to the operational directorate. This reorganization aimed to address major risks in directorates playing a key role in IMF program implementation.

The BCC adopted an audit charter and a multiyear audit plan in 2002, as well as a methodology for the preparation and conduct of a multiyear audit program. In 2004, a procedures manual was put in place and risk mapping was undertaken.

The BCC staff received an intensive training program both in-house and abroad to enhance their audit skills. This training was crucial in building the capacity of the BCC to conduct internal audits effectively.

Key reforms in internal audit included the adoption of an audit charter and a multiyear audit plan, reorganization of the DAI, and introduction of new audit instruments and operating procedures in line with best practices.

The Central Bank of the Congo (BCC) has made significant strides in strengthening its currency and exchange operations. The BCC shifted its foreign exchange operations from an administrative approach to an auction-based system in 2002, which enhanced efficiency and transparency.

The BCC implemented several measures to improve exchange market operations, including limiting intervention volumes to avoid market disruption, using a Dutch auction instead of a single rate auction, and disseminating auction information simultaneously to all foreign exchange dealers.

The BCC also consolidated its reserve accounts, closing 53 accounts in local banks and reducing the number of foreign correspondent accounts. This helped to increase the safety of and return on BCC financial placements.

To further improve foreign exchange operations, the BCC computerized its foreign exchange trading in Phase I of the project, which was completed in March 2006. The Foreign Exchange Department (FED) was also reorganized with a Directorate of Operations set up and structured along front- and back-office functions.

The BCC has also improved its currency issuance function, including guaranteeing the convertibility of banks' free reserves into cash in January 2005, and launching a plan for the gradual and prudent issuance of new banknotes of higher denomination in 2003.

A new operational framework for the management of banknote flows and stocks was developed, and the Treasury Directorate (DT) was reorganized with a new organizational chart and reassignment of staff. The rehabilitation of the DT infrastructure has also been launched, with the inauguration of a new counting/sorting room in May 2006.

The BCC's efforts to improve its currency and exchange operations are ongoing, with a focus on completing the computerization of the FED's back-office operations and implementing new work procedures and methodology for issuing currency.

In 2001, a framework for currency management was in place to forecast and monitor factors affecting currency flows and guide the BCC's decisions on currency issuance.

The BCC had a framework for currency management, but it was flawed, leading to disintermediation through the exchange of bank deposits for cash at a discount.

A new framework for reserve money management was set up between 2002-06 to enable the BCC to track autonomous factors affecting liquidity on a monthly basis.

The BCC is now focusing on improving its database and forecasting ability with the new framework in place.

Monetary policy instruments were overhauled in February 2005, with refinancing facilities consolidated into one standing facility.

The conditions of eligibility for papers used as collateral at the refinancing window were tightened, and bank-by-bank refinancing ceilings were eliminated.

Central bank bills were introduced in December 2002 and used in 2005 to mop up liquidity.

The reform of monetary instruments allowed the BCC to redesign the framework for currency management to manage banknote flows and stock rather than monetary control.

The Central Bank of the Congo is responsible for managing the country's monetary policy, including setting interest rates and regulating the money supply.

The bank was established in 1961 and is headquartered in Kinshasa, the capital city of the Democratic Republic of the Congo.

Its primary goal is to maintain price stability and promote economic growth in the country.

The Central Bank of the Congo has a unique role in the country's financial system, as it also serves as a bank for the government and commercial banks.

It has a mandate to supervise and regulate the banking sector, ensuring that banks operate safely and soundly.

The bank's governor is appointed by the president of the Democratic Republic of the Congo and serves a five-year term.

The Central Bank of the Congo (BCC) played a major role in setting the reform agenda, with assistance from key development partners like the IMF.

The BCC took the driver's seat in the reform process, allowing it to focus on key areas where capacity weaknesses had been identified.

Framing these reforms in a multi-year plan of action with a specific timetable for implementation enabled the BCC to assess progress and expand its reform agenda as new challenges emerged.

Continuous consensus-building among five factions slowed down the pace of implementation, particularly during preparations for the first general elections since independence.

Skilled staff shortages were another constraint on the pace of reform, with only 16 percent of the 2,000 BCC staff being university graduates in mid-2004.

A massive recruitment drive was launched in 2006 to meet the acute need for skilled staff in operational and IT directorates.

The Central Bank of Congo has made a significant move to promote the use of the Congolese franc in electronic payments. The bank has mandated that all Electronic Payment Terminals (EPTs) exclusively accept Congolese francs.

Currently, only 13% of EPTs in the DRC accept Congolese francs, with the majority favoring foreign currencies like the US dollar. This is a significant barrier to promoting the use of the national currency.

The BCC's policy change aims to strengthen the national currency's use and encourage the population to prefer it for everyday transactions. The bank is also introducing a "switch monétique" initiative to integrate all bank cards and streamline transactions.

Economists and experts have praised the BCC's measures, but caution that ensuring the franc's stability is crucial for the long-term success of these dedollarization efforts. The BCC's decisive actions represent a significant step towards reducing the dominance of foreign currencies.