When was the Central Bank of Belize established?

The Central Bank of Belize was established under the Central Bank Act of 1982. The Bank is the successor to the Monetary Authority of Belize which had previously replaced the Monetary Authority of Belize which had previously replaced the Board of Commissioners of Currency in 1976.

Why do we need the Central Bank?
The Central Bank must ensure that money supply does not expand too rapidly since this would lead to increased spending, higher inflation, higher demand for foreign exchange, and a fall in foreign reserves.

The objectives of Belize’s central bank are similar to those of most central banks. A primary objective of the Bank is to promote stability in the monetary system and in the exchange rate. The Central Bank must ensure that money supply does not expand too rapidly since this would lead to increased spending, higher inflation, and a higher demand for foreign reserves. The Central Bank may increase or decrease commercial bank liquidity requirements, or it may influence the interest rate to ensure that the growth in money supply level can promote credit and exchange conditions that are conducive to economic growth.

What are the functions of the Central Bank of Belize?

The functions of the Central Bank as stated in the Act are set out below:

  • The Central Bank provides economic advice to Government
  • As banker to the banking system, the Central Bank provides banking services to commercial banks, Government, and public-sector organizations
  • The Central Bank is the legal entity that is authorized to issue monetary notes and coins in Belize.
  • The Central Bank deals in foreign exchange, that is the buying and selling of foreign currency, in its daily transactions with local and foreign government agencies and financial institutions.
  • The Central Bank manages Belize’s foreign reserves by investing foreign currency in financial institutions abroad while at the same time ensuring that there is sufficient supply of foreign exchange locally.
  • The Central Bank, as fiscal agent to Government, operates a current account for Government; makes foreign debt service payments on behalf of Government; and issues Government securities. The Central Bank may also lend funds to the Government provided that total loans do not exceed $50 million or 20% of current revenue collected in the previous fiscal year, whichever is greater.
  • The Central Bank facilitates securities market transactions and the sale of public shares and debentures in Government-owned companies, which become privatized.
  • In its administration of monetary policy, the Central Bank has the power to control the cash and liquidity requirements of financial institutions. This means that commercial banks may be required to hold more or less of their assets in liquid form depending on the level of credit that is desirable for a given economic situation.
  • As supervisor and regulator of the financial system, the Central Bank monitors the activities of financial institutions, which fall under its jurisdiction to ensure that they obey the law and manage their affairs in ways, which do not go against the public interest.
What is the relation between the Government of Belize and the Central Bank?

The Central Bank Act defines the objectives of the Central Bank as follows:

“Within the context of the economic policy of the Government the Bank shall be guided in all of its actions by the objectives of fostering monetary stability especially as regards stability of the exchange rate and promoting credit and exchange conditions conducive to the growth of the economy of Belize.”

It is clear from the above statement that all policies designed and implemented by the Central Bank must be within the framework of Governments overall economic policies. This means that the policies pursued by the Central Bank will be dependent on the type of policies pursued by the government of the day. For instance, persistent fiscal expansion on the part of the government, while revenues are stagnant or declining, would need to be countered by contractionary monetary policies on the part of the Central Bank. On the other hand, a persistent government budget surplus enables the Central Bank to adopt a more relaxed monetary policy that encourages reduction in interest rates and increased liquidity in the banking system.

Are other central banks autonomous, meaning, do they operate independently from the government?

While the Central Bank has a large degree of autonomy, the law is quite clear about the role of the Central Bank in the pursuance of Government policy. In countries such as the United States, Germany and New Zealand, the central banks are referred to as independent. This is because these central banks report directly to Congress/Parliament (the legislature) and are, therefore, deemed to be independent of the executive arm of government.

The relationship between the Central Bank of Belize and the Government is akin to that in the United Kingdom (UK). The Governor of the Bank of England and the Chancellor of the Exchequer (Minister of Finance) meet regularly to discuss monetary policy issues, but the responsibility for implementing decisions rests with the Governor.

The relationship between the Central Bank of Belize and the Government is akin to that in the United Kingdom (UK). The Governor of the Bank of England and the Chancellor of the Exchequer (Minister of Finance) meet regularly to discuss monetary policy issues, but the responsibility for implementing decisions rests with the Governor.

In the CARICOM region, the most distinctive central bank is the Eastern Caribbean Central Bank (ECCB). This is because the ECCB is a multinational central bank that serves all the countries of the Organization of Eastern Caribbean States (OECS). The Board of Governors of the ECCB comprises the Finance Ministers (usually the Prime Ministers) of each of the seven countries of the OECS.

While the general objectives of most central banks are essentially the same as that of the Central Bank of Belize, some central banks identify price stability as their most important objective. This is dependent on the type of foreign exchange regime that the country is operating under.

An interesting development of late is the consideration that a number of countries have been giving towards the formation of a Currency Board System. Such considerations have arisen in those countries where excessive government borrowing from the central bank has had a negative impact on the economy. The effect of the currency board system would be to limit the role of the central bank to the issue and redemption of currency and thereby eliminate the possibility of lending to the government.