12/06/2010
Dear Madam Speaker, dear Members of Parliament,
You have before you the text of Draft Amendments to the Law on the National Bank of Serbia, proposed by the National Bank of Serbia with a view to harmonising the Law with the Constitution of the Republic of Serbia and strengthening central bank independence in line with central banking standards, as well as principles and recommendations of international financial institutions (the European Central Bank, International Monetary Fund, World Bank). In addition, we also aimed to eliminate irregularities and clarify the provisions whose implementation posed dilemmas (primarily those relating to capital, coverage of losses, allocation of profit and the Statute). The amendments will also provide for further harmonisation with the Treaty on the European Union and the Treaty on the Functioning of the European Union, particularly with the provisions of the Statute of the European System of Central Banks and of the European Central Bank – in view of the Republic of Serbia’s strategic commitment to join the European Union.
The key novelties in the Law are the following:
strengthening all four main aspects of National Bank of Serbia’s independence and autonomy – functional, institutional, personnel and financial;
setting up the Executive Board that will take over all responsibilities of the Monetary Policy Committee and a part of Governor’s responsibilities in the domain of financial sector supervision;
improvement of the supervisory role of the Governor’s Council of the National Bank of Serbia;
clarification of provisions on the election, termination of office and the conflict of interest of the Governor, Vice-Governors and members of the Council;
introduction of more comprehensive and clear provisions on monetary policy instruments and other functions of the National Bank of Serbia;
prohibition of public sector financing;
precise definition of National Bank of Serbia’s assets and the manner of allocating its profit and covering losses;
upgrade of the accountability system for the purpose of strengthening corporate governance in the National Bank of Serbia;
more detailed regulation of other organisational and internal issues.
It should be noted that the principle of central bank independence and autonomy is not an objective per se, but a means of reaching the bank’s primary objective – the achievement and maintenance of price stability.
The first, functional aspect of independence implies unambiguous prioritising of objectives – the primary objective remains the achievement and maintenance of price stability. One of the objectives prescribed is the maintenance of the financial sector as well. Furthermore, the responsibility of the National Bank of Serbia’s bodies for the achievement of these objectives has been clearly defined – the Executive Board and the Governor, within their respective remits, are responsible for the achievement of objectives and the Council is in charge of supervision.
Secondly, with the aim of strengthening the institutional independence of the National Bank of Serbia, the Bank, its bodies and members of its bodies cannot seek or take instructions from government bodies and organisations or from any other person, nor can government bodies and organisations or other persons jeopardise the Bank’s independence and autonomy or seek to influence the Bank, its bodies and members of its bodies in the performance of their tasks. The relationship with government bodies has been defined in a way that ensures their mutual cooperation and does not jeopardise the National Bank of Serbia’s independence.
The amendments regarding Governor’s election arrangements, extended term of office of the Governor, Vice-Governors and members of the Council (from five to six years), the procedure of compulsory retirement of these persons and the unequivocal right to judicial examination of the decision on compulsory retirement are likely to contribute to the personnel independence of the National Bank of Serbia, i.e. they are likely to prevent the influence of government bodies on the performance of the Bank’s tasks. On the other hand, the provisions stipulating the prevention of the conflict of interest exclude the influence of other persons, particularly those supervised by the National Bank of Serbia and/or those it cooperates with.
Finally, the financial independence, which underlies all other aspects of central bank independence, is provided in provisions clearly stipulating that the National Bank of Serbia, for the purpose of achieving the objectives and performing the tasks envisaged by the Law, should be independent in establishing its revenues and expenditures and should have its own assets, as well as in provisions prescribing new rules on capital, allocation of profit and coverage of losses.
I would like to underscore that strengthening of the National Bank of Serbia’s independence and autonomy does not exclude cooperation with economic policy creators, but places this cooperation on more clear and legally firmer grounds, contributing not only to better quality coordination, but to more efficient implementation of economic policy as well. At the same time, strengthened independence and autonomy of the central bank implies its greater responsibility for the measures and decisions taken and implies the need for greater transparency of its work, which is why the Law prescribes more frequent reporting to the National Assembly (the Financial Stability Report, semi-annual report on monetary policy, etc).
As regards management of National Bank of Serbia’s operations and supervision of its operations, the new provisions reallocate the responsibilities of bodies. The Executive Board will assume greater responsibility in the field of preserving and strengthening the stability of the financial sector and the Bank’s supervisory function, as well as the responsibility for regulating important issues pertaining to the Bank’s operations (the tariff, assets, proposing the Statute and the Bank’s development strategy, etc) which have so far generally fallen under the Governor’s remit. The Governor’s Council will also assume additional responsibilities, particularly in the sphere of financial operations, which are to contribute to better quality and more efficient supervision of the National Bank of Serbia.
At the end, I would like to mention a novelty regarding the prohibition of monetary financing. The Law contains a provision prohibiting the central bank to finance public authorities, regardless of the level of authority (Republic, regional or local level) and the form of authority (directly or indirectly in the form of public enterprises, agencies or other legal entities that it founded or in which it has a controlling stake). This provision is of key importance for the achievement of the primary objective of monetary policy and for the maintenance of indispensable fiscal discipline.
Thank you very much for your attention. I stand ready to answer any of your questions about the draft amendments to the Law which will contribute in the long run to the upgrade of operations of the Republic of Serbia’s central bank, the achievement of its objectives and to the well-being of our country!
Governor`s Office
