New era for democratised, independent BOJ

In a new marker for central banking in Jamaica, the amended Bank of Jamaica Act took effect on Friday, April 16, giving the BOJ full independence to craft policy based on its priorities for the monetary system.

On the eve of the new law taking effect, both the governor of the BOJ and Minister of Finance Dr Nigel Clarke hailed the legislation – the Bank of Jamaica Amendment Act 2020 – passed by the Parliament and enacted in December last year as a move that would democratise the central bank.

In responses to the Financial Gleaner queries prior to Friday’s milestone, BOJ Governor Richard Byles said the central bank would have two new committees: a monetary policy committee and a financial regulatory committee.

“They will involve independent non-BOJ persons and attempts to democratise the process,” Byles said.

Before the legislative change, the governor, as bank supervisor, had sole responsibility in law for the supervision of banks and other financial institutions regulated by the central bank. Likewise, monetary policy decisions were the prerogative of the governor after receiving the advice of BOJ technocrats.

“As it stands now, I receive all of the recommendations and arguments, but it is my signature that approves monetary policy. The monetary policy committee will democratise that process. It will call for independent persons, non-BOJ staff, and expert persons to be on that committee. And they will, together with senior persons from BOJ, make those decisions,” the governor said.

The decisions of the committee will also be made public by the publication of minutes of their meetings, and the central bank’s board is to be broadened with new members from the public with staggered tenures.

“It will not have members of the civil service or any other government-related enterprise. It will be purely senior BOJ staff and independent persons from the community at large,” Byles said.

For the finance minister, one of the virtues of the board rotation will be the crossover of at least some members into different political terms and election cycles.

“These are quite significant changes at the level of the board, and the members will not be subject to the political cycle and cannot all be changed in any single political cycle,” Clarke said.

Asked on Friday for an update on the new committees and board appointments, BOJ senior deputy governor Wayne Robinson said the information would be issued in a statement to the media.

Aspects of the broader financial administration of the Government are also being made more democratic, with the newly independent BOJ now reporting to Parliament rather than to the finance minister.

As part of its central role, the BOJ conducts monetary policy aimed at keeping inflation within a targeted range. The current target range is four to six per cent. The institution’s monetary policy stance is reflected in changes in the rates offered on overnight balances held at the central bank by deposit-taking institutions, that is, the policy rate.

Meanwhile, the finance minister is underscoring the importance of central bank independence, its new primary focus on price stability, and the changed reporting arrangement involving Parliament.

“There was a time when the ultimate authority in supervisory matters was the minister of finance. That was removed (some years ago), with the central bank gaining autonomy in supervisory matters. Now, the mandate of the central bank has been clarified. It is to pursue price stability as well as financial-system stability, with price stability being the primary mandate,” Clarke told the Financial Gleaner in a recent interview.

“Credibility of the central bank in its role to maintain low and stable inflation is critically important. That credibility is enhanced when all citizens know that the persons who are responsible for the conduct of monetary policy have independence in doing so. By operational independence, we don’t mean unconditional independence. For central bank independence to have democratic legitimacy, there must be an accountable, robust governance framework, and that framework must be transparent,” the minister said.

Coupled with the new requirement for the publication of the minutes of meetings of the BOJ’s monetary policy committee, the minister noted that the BOJ governor would now appear in Parliament to answer questions during meetings of the standing finance committee at Budget time.

“In 59 years of independence, we have never seen any of the deliberations that go into the setting of interest rates or monetary policy,” said Clarke, while stressing the importance of the new reporting mechanisms.

The Bank of Jamaica was established by statute in 1960 and became operational in May 1961, a year before Jamaica gained its independence from Britain. Byles is its 12th governor.

At the last publication of BOJ’s balance sheet, which is done twice per month, year-to-date profit of $7.65 billion was due to be paid to the government. The central bank held $922 billion of assets at March 10, nearly two-thirds of which were foreign assets, while its capital and reserves were just shy of $45 billion.

huntley.medley@gleanerjm.com