Since June 2011, the Bank of Zambia (BoZ) and Norges Bank have been engaged in a technical cooperation (TC) program where Norges Bank has been given the opportunity to share practical insights from our own modernization efforts with our colleagues from the BoZ. The program is scheduled to run until September 2015, but evaluations done so far show that the BoZ has already made substantial progress in all program areas. We are impressed with our colleagues' ability to develop new capacity and implement new structures.
The program focuses on five key areas of development:
Moving toward an inflation-targeting framework for monetary policy: Building capacity in the various fields necessary for conducting monetary policy within an inflation-targeting framework is clearly the largest single stream of the project. It concerns many aspects of both the formulation and the implementation of monetary policy as well as their prerequisites. Norges Bank has shared insights in the development of macroeconomic models and analytical frameworks, the enhancement of interbank money and foreign exchange markets, deepening of the secondary market in government securities, as well as the enhancement of liquidity forecasting techniques and reporting.
Financial stability analyses and reporting:
Systemic financial crises in developed and developing countries around the world have highlighted the need for systematic monitoring of financial system stability as an addition to the supervisory work on financial institution stability. Norges Bank has worked with the BoZ in developing tools for analysis including stress testing, early warning indicators, financial stability indicators, and crisis preparedness.
Payment system oversight and structural framework enhancement: An efficient and account-based payment system will lower transaction costs and reduce the security challenges that the storage and transport of currency represent. The central bank is the operator of the top-level payment system of the nation where banks settle their internal payments, and monitors stability and efficiency in systems providing payment services to the general public. Norges Bank has worked with the BoZ in developing frameworks and procedures for payment system oversight and provided guidance in introducing a national automatic switch that will facilitate interoperability between the banks offering payment services in Zambia.
Zambia is still largely a cash-based economy. Most transactions are settled using cash, and cash also has an important role as a store of value. Therefore, the efficiency related to all aspects of currency operations is important. For the financial industry and the BoZ the costs associated with the logistical system, i.e. procurement, distribution, collection, and destruction, is of great importance. Norges Bank has worked with the BoZ on improving the cost of currency management, including the development of automated currency management systems, and the development of staff capacity in wholesale currency management.
Over the years, Norges Bank has changed its organization considerably to create a lean organization that focuses on core central banking activities. Against this background, Norges Bank has shared insights in organizational review, including planning, budgeting, performance management systems, and webpage development.
The execution of the TC program is under the supervision and quality control of the IMF, and financed by resources provided by the Norwegian authorities, with the Norwegian Ministry of Foreign Affairs as partner in the program. A long-term resident advisor recruited from Norges Bank coordinates, monitors, and follows up program activities.
KEY SUCCESS CRITERIA
The distinctive features of this cooperation program are its medium-term outlook and the central bank-to-central bank cooperation that serves as the main vehicle for development and capacity building. We believe they are also key to the program's success so far.
The road to creating a positive and noticeable impact is much shorter when one central bank cooperates directly with another, sharing both insights and practical solutions for analysis and policy implementation on an expert-to-expert level. It is our considered view that the program is able to achieve most of its objectives in the short to medium term through a delicate balancing act; we divide our energies between the allocation of sufficient time to enable knowledge sharing, transfer, and implementation on one side, and allowing for sufficient time-pressure necessary for steady progress on the other.