W/African Central Banks look at new currency control mechanism

Central Bank officials from the sub-region are charting out a new direction of maintaining qualitative banknotes and currency management that will ensure the durability and protection of national currencies from counterfeiters and other deficiencies. Held at the Paradise Suites Hotel in Kololi, the five-day workshop that commenced yesterday, brought together senior central bank officials from The Gambia, Nigeria, Ghana, Sierra Leone and other countries to study and dilate on the New Challenges in Currency Management, New Directions in Banknote Design, Security Features Against Counterfeiting, Forecasting the Demand for Banknotes, and Country Case Studies on Currency Management. Organised by  the West African Institute for Financial and Economic Management (WAIFEM), in collaboration with Dela Rue, under the theme: "Banknote and Currency Management and Forecasting in Central Banks", the workshop would not have been more appropriate given the fact that member countries' economies remain predominantly cash-based, reflecting the preference of economic agents, the weakness of the legal system to enforce contracts, and the level of development of payments in member countries. "Thus, this maiden workshop could not have come at a more auspicious time, given the problems of currency management in our countries and the urgent need to chart a new direction consistent with best practices, in order to engender greater efficiency and minimize the cost of printing and minting currency," WAIFEM Director-General Prof Akpan H. Ekpo, said in his opening remarks on the occasion. No central bank function is more visible than currency management, Prof Ekpo says, adding that a currency's integrity and efficient supply are unequivocal everyday indicators of a well-functioning central bank. "In the eyes of the people, this integral central bank function should be efficient, meet demand and also present minimal issues which may damage the reputation of the country. Of particular concern is the issue of counterfeiting, which is as old as money itself, and continues to present a potential danger to national economies and financial losses to consumers. "Worse of all, recent developments in photographic and computer technology, as well as printing devices, have made the production of counterfeit money relatively easy, thereby increasing the potential threat." Currency management is a critical aspect of central bank's functions, says Hon. Amadou Colley, Governor of the Central Bank of The Gambia, while delivering the keynote address on the occasion. "The integrity of the currency and efficient supply of banknotes are indicators of a well-functioning central bank, especially in preponderantly cash based economies such as ours," he said, "adding that issuing and destroying cash, maintaining note quality and guarding against counterfeit notes is a complex business and is increasingly costly." Some organizations have responded to this growing trend by outsourcing currency sorting, he also notes. The International Organization for Standardization (IOS) certification, he explains, ensures that minimum international quality standards are adhered to in the systems and procedures followed in an organization. "Here, quality implies doing right things the right way, first time and every time," he said. Touching on key elements in Banknote Design, Hon. Colley said: "For currency managers, note designs present a series of interlocking challenges. New designs must win public acceptance, incorporate requisite security features and meet durability and machine processing standards. Fitness standards for currency in circulation must be set and monitored whether currency sorting is carried out in-house or outsourced. "The proliferation of Automated Teller Machines (ATMs) has had a considerable impact and sharpened the focus for both commercial and central banks. The growing network of ATMs has also affected the composition shift from lower denomination notes to higher denomination notes. "The banks do not find it commercially viable to stock the machines with lower denomination notes because they run out sooner and increase both the capital cost and operating costs." The CBG Governor also dilated on the demand for banknotes, saying efficient and effective currency management commences with a strategic analysis of the currency life-cycle. However, he observed, strategic management of currency "is impossible" without accurate forecasts of the demand for banknotes. "The long lead time involved in banknote production makes it vital from cost and reputational point of view that central banks forecast the demand for banknotes as accurately as possible," he said, adding: "Indeed, the benefits of accurate forecasting are obvious. It encourages more efficient procurement and reduces stockholding costs. In other words, a disciplined, balanced approach to currency management reduces opportunity losses and thus enhances the smooth functioning of the banking system." Other speakers on the occasion included Mr Morf Ulrich of Orell Fussli Security Printing Limited and Mr Ehi E. Ekoyomon, MD/CE, Nigerian Security, Printing & Mining Plc. Source: The Point

The Gambia’s money supply takes an upward swing

Lamin Jahateh, Banjul The circulation of money in the Gambia economy has continued to increase vis-à-vis prudent monetary policy put in place by the Central Bank of The Gambia to control money supply excesses that usually lead to inflation. Money supply (M2), which is a measure of the total money in circulation, increased by 19.4 per cent in December 2009 from 18.4 per cent in the preceding year, the latest report of the Central Bank of The Gambia has indicated. The Bank’s 2009 report, which was recently presented at the National Assembly for adoption, states that the increase in money supply was on account of increase in both Net Foreign Assets (NFA) and Net Domestic Assets (NDA) of the entire banking system with the NDA growing at a faster pace. Net Foreign Assets is the value of the assets a country owns abroad, minus the value of the domestic assets owned by foreigners, while Net Domestic Assets refers to a country’s commercial banks’ and/or its central bank’s lending to entities, private or public, within the country minus borrowing from those entities. According to the report, broad money, which is a measure of the money supply that includes more than just physical money such as currency and coins, grew largely on account of the surge in deposits. The report states that quasi-money, which include savings and time deposits, increased significantly by 30.3 per cent to D6.1 billion from D4.7 billion in December 2008.  “Savings and time deposit rose noticeable by 19.8 per cent and 45.1 per cent respectively.  Consequently, the share of quasi-money to broad money grew to 52.1 per cent at end-December 2009 from 47.7 per cent at end-December 2008,” the report says. Narrow money (M1), currency outside banks and demand deposits, expanded to D5.6 billion or 9.4 per cent in 2009.  The report noted that both demand deposit and currency outside banks grew by 9.4 per cent and 9.4 per cent during the period under review.  The ratio of narrow money to broad money contracted from 52.3 per cent at end-December 2008 to 47.9 per cent at end-December 2009. Increment of foreign assets of banks The Net Foreign Assets (NFA) of the banking system grew by 10.5 per cent to D3.9 billion in December 2009 from D3.3 billion in the corresponding period a year ago, the CBG report observed, adding that the reason for this growth is due to a significant expansion in the NFA of the Central Bank. Conversely, the report says the NFA of deposit money banks decelerated marginally to D0.7 billion or 11.9 per cent compared to a decline of 21.7 per cent in the previous year.  It also explained that the gross official reserves of the Central Bank rose from D3.0 billion in December 2008 to D4.9 billion in 2009. Foreign liabilities of the Central Bank, according to the report, stood at D0.3 billion in 2008 compared to D1.7 billion in 2009.  The foreign liabilities of commercial banks in the country also increased by 47.9 per cent, during the review period, as a result of the marked increase in foreign borrowing. Domestic assets of banks increase The Net Domestic Assets (NDA) of the banking system rose to D7.8 billion from D6.3 billion in 2008 owing to the increase in domestic credit. Domestic credit grew by 16.4 per cent compared to 53.2 per cent in the preceding period. The report disclosed that credit extended to government rose substantially by 78.5 per cent. Growth in monetary base The Central Bank uses monetary targeting mechanisms in the conduct of monetary policy.  In this regard, base money is used as the operating target while broad money and inflation are the intermediate and ultimate targets, respectively.  The Central Bank, in pursuit of its objectives of maintaining price stability and supporting the government’s overall macroeconomic objective of achieving accelerated and non-volatile growth for poverty reduction, sets its monetary targets in consultation with the International Monetary Fund (IMF) as part of the Extended Credit Facility arrangements. The CBG report reveals that base money, which is the amount of money in the economy, rose to D3.2 billion or 9.3 per cent in December 2009 compared to D2.9 billion or 5.7 per cent in the corresponding period a year earlier and slightly above the 8.6 per cent growth projected for the year. Consequently, it states that currency in circulation and reserves of deposit money banks edged up by 8.1 per cent and 12.1 per cent respectively. The growth in base money was influenced by the Net Foreign Assets and Net Domestic Asset of the Monetary Authorities. The NFA of the Central Bank rose to D3.2 billion or by 16.7 per cent in December 2009 compared to a contraction of 9.3 per cent to D2.8 billion in the corresponding period of the previous year.  Gross official reserves and external liabilities of the CBG increased during the same period, according to the report.  In contrast, the Net Domestic Assets of the Monetary Authorities declined from D132.7 million at end-December 2008 to negative D60.1 million during the period under review, reflecting a marked decrease in domestic credit. Domestic credit, credit granted to domestic agents – which includes individuals and companies inside the country, dropped substantially by 286.4 per cent to negative D292.7 million.  Credit to the private and public sectors declined by 80.3 per cent and 17.5 per cent respectively.  Governments’ surplus position with the Central Bank increased markedly by 97.9 percent on account of a drop in gross claims and increase in government deposits. The ratio between the Central Bank’s Net Foreign Assets and reserve money is an important lead indicator of possible pressures on the exchange rate.  A fall in the ratio could be due to excess liquidity which could lead to rapid credit expansion. The ratio of NFA to reserve money was 95.4 per cent in 2008 compared to 101.9 per cent in 2009.