The International Monetary Fund (IMF) has reviewed the governance policies of central banks around the world to minimise risks of misuse of loans and default on payments.
The Washington DC headquartered institution recently published a safeguards assessment policy report following the review by an external expert panel that was chaired by Central Bank of Kenya (CBK) chairperson Mohammed Nyaoga.
The Nyaoga team made several key recommendations to the IMF that have been adopted, marking another milestone in tightening the operations of central banks.
"It was a big honour for the country and the continent to lead such a high-level global panel to come up with safeguards assessment policy that will be used for the next five years,” said Mr Nyaoga.
One of the recommendations is that central banks set up a separate pillar focusing on board effectiveness and governance culture. The panel told the IMF that aspects of governance, especially those about board decision-making and culture, have not been well understood by central banks and therefore the need for a separate pillar.
According to the panel, a separate pillar would allow a more holistic view of governance to elevate the focus on board governance, effectiveness, and leadership.
“This stemmed from our observations that key aspects of governance, especially those about board decision-making and culture, were not well understood by central banks,” said Mr Nyaoga.
“We emphasised the importance of governance and the role of the board in overseeing strong controls and transparency practices.”
The Nyaoga team proposed that every central bank approaches the governance pillar based on their environment but should focus on general principles such as autonomy, accountability, disciplined and ethical conduct.
“We acknowledge that [there is] 'no one size fits all', given that central banks are at various stages of governance sophistication and operate in different legal, political, economic, and cultural contexts,” said Mr Nyaoga.
The panel has also recommended regular evaluation of central banks boards, including checking the composition, responsibilities, diversity and suitability of members so that any weaknesses are addressed early.
According to the panel, risks such as the Covid-19 pandemic, wars, climate-related risks and cyber incidents call for increased attention and therefore increased size and depth of risk management.
Developments such as the issuance of central banks' digital currencies in some countries were cited as one of the reasons for increased safeguards.
