Recapitalisation will provide BOJ with steady income stream
The central bank's authorised capital is to be increased to $28 billion based on the revision to the Bank of Jamaica (BOJ) Act. Of that amount, $22.6 billion is expected to be paid up based on current projections of the 2018 financials.
The capitalisation would be effected by the Government of Jamaica issuing marketable securities to BOJ when the new provisions and the effective date are approved by Parliament.
Senior Deputy Governor of the BOJ, John Robinson, said that would bring the bank's paid-up capital to approximately five per cent of the monetary liabilities of the bank based on projections for 2018, "an amount which will allow the bank to be able to conduct monetary policy without reliance on budgetary support from central government to cover any losses that result".
He said that updating of the bank's capital to five per cent of monetary liabilities brings the capitalisation to "realistic levels to allow for monetary policy to be effected with greater independence from Government".
Robinson noted that payment by way of marketable securities will provide the bank with an income stream that is certain.
The proposals in the bill for greater independence of the central bank also include board appointments and structure.
Government employees, including the financial secretary, and employees of statutory bodies and executive agencies would be disqualified from being appointed to the board.
Board members would be appointed by the governor general instead of the minister of finance.
Further, to ensure that board members are appointed across political cycles, their term will be increased from the present provision of not exceeding three years to 10 years. Appointments will be staggered so their terms would not end at the same time.
As is presently the case of the governor, the senior deputy governor, who is an ex-officio member of the board, would also be appointed by the governor general instead of the minister.
The next plank of independence recommended under the amendments is the establishment of a monetary policy committee and a financial policy committee.
Monetary policy will be set by the monetary policy committee, chaired by the governor with internal and independent external board members. Financial policies would be set by the financial policy committee, also chaired by the governor with internal and independent external board members.
Members of the House of Representatives and the Senate and employees of government and statutory bodies and agencies would be ineligible for appointment to the committees.
The amendments also affect provisions that currently allow the minister of finance to give directions of a general nature to the bank on matters that appear to be necessary in the public interest.
These would be amended to provide that such directions may not be given on matters relating to monetary policy or supervision.
The BOJ would also be prohibited from granting loans to or acquiring shares in a corporation established for development purposes to guard against indirect credit to government.
There will also be new limitations on temporary advances to government.
At present, the bank may make temporary make advances to government up to a limit of 30 per cent of estimated revenues for the financial year.
The amendments proposed in the bill limit any such temporary advances by the bank to the government in any fiscal year to circumstances of national emergency declared by a prime minister and an aggregate five cent of average revenues for the last three three fiscal years. Advances made would be subject to interest at prevailing market rates.
Robinson noted that coupled with the provisions for independence of the central bank are provisions that strengthen the accountability and transparency of the operations of the bank. Included in those provisions are strengthening of the oversight role of the bank's board to include statutory committees such as the current supervisory committee and financial system stability committee, as well as the to-be-formed monetary policy and financial policy committees.
"This oversight role would not interfere with the decision-making functions of the committees but would assure that these committees are operating effectively within the mandates provided by the legislation," he said.