Money & banking lecture 10 (mansoura university)

A L M O A T A S S E M M O S T A F AL E C T U R E T E N : 1 0 D E C E M B E R 2 0 1 6

MONEY & BANKING

THE CENTRAL BANK OF EGYPT

• Functions of the Central Bank of Egypt• Structure of the Central Bank of Egypt

INTRODUCTION

• CBE is the supreme bank in Egypt.• It is the sole issuer of the Egyptian currency.• It oversees the banking sector in Egypt.• It conducts monetary policy in Egypt.• CBE and the banking sector in Egypt are

governed by the Law No.88 of the Year 2003, which is known as the Central Bank Law.

FUNCTIONS OF CBE

Price Stability

Monetary Policy

Egyptian Currency

Supervision

Foreign Currency

External Debt

FUNCTIONS OF CBE• Realizing price stability and ensuring the soundness of the

banking system;• Formulating and implementing the monetary, credit &

banking policies;• Issuing banknotes and determining their denominations and

specifications;• Supervising the banking sector;• Managing the foreign currency international reserves of the

country;• Regulating the functioning of the foreign exchange market;• Supervising the national payments' system.• Recording and following up on Egypt's external debt (public

and private)

PRICE STABILITY

• The 5th article of The Central Bank Law specified that the CBE must consider price stability as the primary objective of monetary policy in Egypt • In this context, price stability involves reaching low

inflation rates over the medium term • Price stability is highly important as it contributes in

preserving confidence in the payment system and in promoting investment and economic growth.• In its attempt to achieve price stability, the CBE

controls short-term interest rates, credit, and money supply through either contractionary or expansionary monetary policy.

PRICE STABILITY

• The CBE shall also collaborate with the government in setting the other objectives of monetary policy. In addition to monetary policy, the CBE is also responsible for the designation and implementation of both banking and credit policies.

ISSUING THE EGYPTIAN POUND

• the CBE is the sole issuer of the Egyptian pound in the form of notes and coins. • It determines the shape, specifications, and

denominations of the Egyptian Pound. • This function is significant as it ensures an

efficient monitoring of the amount of liquidity in the economy. • It also guarantees that all the people use a

unified currency within the Egyptian Territory. Finally, it promotes trust in the Egyptian currency and reduces the risk of currency counterfeiting.

SUPERVISING THE BANKING SECTOR

• The CBE exercises supervision over the activities of the banks operating in Egypt in order to ensure an efficient and sound operation of the banking system.

• The CBE conducts this kind of supervision by designating and implementing monetary, credit, and banking policies.

• Through this supervisory position, the CBE overlooks the activities of the various banks and issues the necessary decisions and regulations that guarantee an efficient performance and a sound financial position of these banks.

• This supervision allows the CBE to ensure the efficiency and soundness of the banking system, compliance of the banks with financial laws and regulations, and development of efficient risk management systems in the banks.

SUPERVISING THE BANKING SECTOR

BANKER TO THE GOVERNMENT

• As a banker to the government, the CBE manages the country’s reserves of foreign currency and monitors its internal and external debt. • The CBE also monitors the operation of the

foreign exchange market and determines the exchange rate system adopted in Egypt. These functions are basically tools of the monetary policy conducted by the CBE. It uses these tools to influence money supply, and therefore, to influence price levels in the economy.

SUPERVISING THE NATIONAL PAYMENT SYSTEM

• The Central Bank Law authorizes the CBE to supervise the national payment system.

• The national payment system involves all the payment services provided by banks to customers, including Internet, mobile, and phone banking in addition to all governmental payment and collection services, and bill payment services.

• The CBE conducts this kind of supervision over the payment system through issuing decisions and regulations that ensure the sound operation of the payment system. In addition to supervision, the CBE itself is engaged in a number of payment services and supports the development of the national payment system.

STRUCTURE OF CBE

STRUCTURE OF CBE

• The Central Bank of Egypt is composed of a board of directors, a governor, two deputy governors, and a number of committees and subcommittees, each with a respective competence

BOARD OF DIRECTORS• Article 12 of the Central Bank Law specified the formation

of the CBE’s board of directors as follows:• The governor of CBE as the chairman of the board;• The two deputy governors;• The chairman of the Capital Market Authority;• Three members representing the ministries of Finance, Planning,

and Foreign Trade; and• Eight experienced persons specialized in monetary, financial,

banking, legal and economic affairs. • The Prime Minister based on nominations from the

relevant ministers appoints the three representatives of ministries of Finance, Planning, and Foreign Trade. In contrast, the President of the State appoints the eight experts for a renewable period of four years.

BOARD OF DIRECTORS

• Article 14 of the Central Bank Law indicated that the Board of Directors is the highest authority of the CBE; it is responsible for the implementation of the CBE’s objectives in addition to the designation and implementation of the monetary, credit, and banking policies.

• It is additionally responsible for all the matters related to the CBE, including the approval of the CBE’s budget, financial statements, and reports, the approval of the organizational structure of the CBE, and issuing the internal bylaws and regulations related to the financial, administrative, and technical affairs of the CBE

GOVERNOR

• The governor of the CBE is appointed by the President of the State based on a nomination by the Prime Minister for a renewable period of four years. • The governor chairs the Board of Directors. • In addition, he represents the CBE before courts

and in its relation with other parties. • He also manages all the CBE’s affairs with the

assistance of the deputies and subgovernors.

DEPUTY GOVERNORS• The governor of CBE has two deputies: a monetary

stability deputy governor and a banking stability deputy governor.

• The deputies are appointed by the President of the State based on a nomination from the Governor for a renewable period of four years.

• In addition to being members of the Board of Directors, the two deputies assist the governor in his functions.

• Each deputy has various departments and offices operating under his/her supervision.

• In case of the absence of the governor, the most senior deputy acts on his behalf, and if the latter is absent, the other deputy acts on his behalf.

DEPUTY GOVERNORS

• In addition to the deputies, the governor can nominate sub-governors to be appointed by the Board of Directors. • They also assist the governor in his functions, but

they cannot, nevertheless, act on his behalf as the case with the deputy governors.

COMMITTEES• There are various committees that are subsidiaries to the Board

of Directors of the CBE. These committees include the Monetary Policy Committee, Treasury & Money Market Committee, Banking Reform Committee, and Auditing Committee.

• The CBE’s Monetary Policy Committee (MPC) consists of seven members, including the Governor of the CBE, the two Deputy Governors, and four members of the Board of Directors. All the monetary policy decisions are conducted by the MPC.

• The MPC determines interest rates based on a number of domestic and global variables. The domestic factors include inflation, interest rates, monetary and credit developments, asset prices, and the real sector variables. Globally, the MCP observes global growth, global interest rates, international commodity prices, and global inflation.

COMMITTEES

• In addition to the MPC, there is the Treasury and Money Market Committee, the Banking Reform Committee, and the Auditing Committee. All these committees, including the MPC, are subsidiaries of the CBE’s Board of Directors.