The Nature, Function, and Independence of the National Bank of Ethiopia: A Comparative Analysis in Light of International Practices

Abstract

A central bank is an autonomous institution that is mainly bestowed with the mandate to ensure the maintenance of price stability by formulating and implementing monetary policy. To fulfill its purposes, the law should make sure that the CB is independent of external influence. Accordingly, the NBE is established to act as the central bank of Ethiopia, empowered to deliver on multiple objectives, including price and exchange stability. Nonetheless, it is evident under its legal framework that the requirements for institutional, functional, and personal independence of the NBE are disregarded. Hence, having this problem in mind and considering the research gap in the particular area, the study attempted to review relevant legal instruments of the NBE, assessing them against parameters of institutional, functional, and personal independence; selected countries’ laws, and the expert opinions of NBE officials and IMF expert to make the required analysis about the nature, functions, and independence of the NBE. Consequently, the study revealed impediments related to the institutional, functional, and personal autonomy of the bank. Thus, concerning institutional independence, there is a lack of clear provisions protecting the bank from government and other entities' influence. The absence of hierarchy between its objectives, the dominance of government representatives in the BoD, the absence of legal limitations on the advances to be provided to the government, and ambiguity as to the role of monetary policy formulation and oversight roles of the BoD are the manifestations of the absence of functional independence. Whereas, in terms of personal autonomy lack of provisions stipulating the security of tenure, qualification criteria, and procedure for the appointment and dismissal of the BoD members, Governor, and Deputies are evident. Having identified these concerns under the current laws, the researcher recommends the relevant revisions of the laws to address the enumerated impediments in line with the best practices of central banks.