The Monetary Board, Governor and administration of the Central Bank

Central Bank Governor Arjuna Mahendran

As a retired employee of the Central Bank I have been reading with concern several newspaper articles relating to the activities of the management and activities of the Central Bank and in particular regarding the bond issue made on 27 February. In all these news items the Governor of the Central Bank has been made accountable in respect of certain lapses or maladministration.

In this regard I wish to submit the following for the information and consideration of the public.

The Central Bank was established in the year 1949 by the Monetary Law Act No. 58 of 1949 (MLA). As shown in the website of the Central Bank, the Central Bank has a unique legal structure in that it is not an incorporated body. In terms of the Monetary Law Act, the corporate status is conferred on the Monetary Board, which is vested with all powers, functions and duties. 

According to the MLA as the governing body of the Central Bank, the administration and management of the Central Bank is vested with the Monetary Board and the Monetary Board is mainly responsible for making all policy decisions related to the management, operation and administration of the Central Bank. 

This legal position is in view of the provisions of Section 8 of the MLA which specifically states that the Monetary Board of the Central Bank shall, in addition to determining the policies or measures authorised to be adopted or taken under this Act, be vested with the powers, duties and functions of the Central Bank under this Act, and be generally responsible for the management, operations and administration of the Bank: provided, however, where the Monetary Board considers it appropriate, it may delegate to the Governor, or to any officer of the Central Bank or to a Committee of such officers, any power, duty or function conferred or imposed on, or assigned to, the Board by certain provisions of the Act. 

The Monetary Board of the Central Bank consists of five members: The Governor, the Secretary to the Ministry of Finance (ex-officio) and three non-executive members. The present three non-executive members are R.A. Jayatissa, Manohari Ramanathan and Chrishantha Priyanga Richard Perera. The Governor is the Chairman of the Monetary Board and he also functions as the Chief Executive Officer of the Central Bank. Consequently all important decisions relating to the activities of the Central Bank are required to be taken by the Monetary Board. The quorum for Monetary Board meetings is three members. 

The concurrence of three members is required for decisions of the Monetary Board to be valid. However in cases where a unanimous decision is required, the concurrence of all five members is necessary. Although the 19th Amendment to the Constitution did not refer to the appointment of Monetary Board members after the amendment made to the Monetary Law Act in the year 2002 the appointed members to the Monetary Board are appointed by the President on the recommendation of the Minister of Finance, with the concurrence of the Constitutional Council. These provisions clearly establish the important role that has to be played by the appointed members of the Monetary Board and the public duty that is cast on them.

Even in simple matters like such as the establishment of department of the Central Bank, it is the Monetary Board that is vested, in terms of Section 33 of the MLA to establish and maintain departments other than the Statutory Departments such as Currency Department, Economic Research Department, Bank Supervision Department and the Public Debt Department.

I have yet to read any news item where the Monetary Board’s role in relation to the activities of the Central Bank is stressed, although Monetary Board has been sued in relation to the investment of monies in the Greek bonds, because it is not legally possible to institute action against the Central Bank. 

Hence, I am troubled that erudite journalists, in the editorials and other news items of our newspapers (as well as in television discussions) do not attribute any legal responsibility to the Monetary Board regarding the matters highlighted in the newspapers relating to the recent activities of the Central Bank. 

Also, news items have been written about the recent transfers in the Central Bank. If one could call for the internal circulars relating to transfers issued annually, one would conclude that internal transfers of Heads of Departments and other staff of the Central Bank are regular and routine. 

Recently, newspapers carried information relating to a meeting held by a group of senior officials in a conference room to discuss issues relating to recent transfers and the appointment of consultants to the bank. During my very long years of service in the bank, I cannot recall any occasion where similar meetings had been held in a conference room, although we have participated in walk outs and the staff officers union has issued internal circulars pointing out matters of disagreement with the management. Normally discussions of the nature referred in the news items is held in the canteen or outside the Central Bank or those days sometimes at Pagoda Tea rooms.

Furthermore, regarding the much talked about Treasury bonds issue, aspersions have been cast at the Governor for visiting the Public Debt Department. It is not an unusual practice for the Governor to visit departments in the bank and in my career in the bank I have witnessed many occasions where former governors visiting departments. 

In terms of Section 113 of the Monetary Law Act, it is the Central Bank that is responsible for the management of the public debt as the Agent of the Government. Accordingly, the Public Debt Department (PDD) of the CBSL on behalf of the Government issues debt instruments and handles all matters relating to servicing the domestic and foreign debt of the Government. Hence it is the Monetary Board that is ultimately responsible and accountable for the activities of the Public Debt Department done as the agent of the Finance Ministry. Yet no mention has been made in any news item whether the Monetary Board has attempted to ensure that the primary dealer concerned has not acted in contravention of the direction on Customer Charter issued in the year 2013 inter alia, under the Registers Stocks and Securities Ordinance containing the provisions relating to the issue of Treasury bonds. 

Regarding the alleged information leak out relating to Treasury bonds auction details to the primary dealer concerned, the Governor has been focused on as if he was the only person who had the access to information relating to the Government’s borrowing requirements. The relevant information was available to others including the officials of the Finance Ministry. Also any primary dealer with serious research capability could have known the requirements of the Government. 

It appears that the public is deprived of worthwhile news items because of the mundane matters relating to the Central Bank highlighted in the print media. 

Senehelatha Perera