Alternatives to the Central Bank in the Developing World

Occasional Papers, March 15, 1983

Source details

Paper discusses the operations of a wide range of central banking institutions in developing countries.
Emphasizes the considerable diversity of economic, financial, and political conditions across the Third World and the resulting variety of central banking institutions.
Identifies four polar types as providing coherent alternatives to the central bank.
Author: Charles Collyns.
Date: March 15, 1983.
Pages: 28.

Legislation on its own may not be sufficient to guarantee prudent behavior by central banking institutions.
In many cases central banking institutions have not come close to violating foreign exchange cover requirements or restrictions on government lending; in other cases rules have been sidestepped by technical adjustments, altered expediently, or ignored.
The organizational structure established by legislation likely plays a more positive role in determining a central banking institution's characteristic behavior than legislation alone.
Operating procedures, channels of communication, and lines of command influence where and how decisions are made in practice.
The balance of power between government and monetary authority is influenced not only by personality and outside support but also by the institutional framework that structures their interaction.

Diversity of institutional forms:
- Wide variety of central banking institutions across regions and countries due to differing economic, financial, and political conditions.
- Four polar types are highlighted as coherent alternatives to a single central bank model.
Limits of legal constraints:
- Historical experience shows legal limits (e.g., foreign exchange cover requirements, restrictions on government lending) can be circumvented.
- Technical adjustments and expedient alterations can undermine statutory safeguards.
Institutional design matters:
- Organizational structure, operating procedures, communication channels, and command lines affect real-world behavior and decision-making.
- Institutional framework shapes the effective balance of power between government and monetary authority.

Subject: Banking, Commercial banks, Credit, Currencies, Domestic credit, Economic integration, Financial institutions, Monetary unions, Money
Keywords: Africa, Asia and Pacific, Australia and New Zealand, Caribbean, central bank, characteristic behavior, commercial bank, Commercial banks, Credit, Currencies, demand liability, Domestic credit, ECCA member country, economy, government, institution need, lending, Monetary unions, OP, section VII, West Africa