The Bank of Papua New Guinea is the country’s central bank. It was established on 1st November 1973. It administers monetary policy, supervises the financial system, acts as banker to the State and to the banks and publishes economic and financial information.
The Central Banking Act, 1973 says: “…the Bank shall, within the limits of its powers, ensure that its monetary and banking policy is directed to the greatest advantage of the people of Papua New Guinea and direct its efforts to promoting monetary stability and a sound and efficient financial structure.”
The Governor of the Bank, Mr. Koiari Tarata, is only the third in the Bank’s history. A Board is appointed by the Minister of Finance to decide on the policies of the Bank. It includes six to eight members who serve for three year terms.
The bank employs 228 people of whom 222 are nationals. 54 of these are graduates. The International Monetary Fund, the United Nations Development Programme and the Overseas Development Institute provide 6 non-nationals for secondment to the bank. There is only one office – in downtown Port Moresby.
The Bank supervises and monitors the operations of the financial system including the commercial banks. It issues and distributes all notes and coins in PNG. It is responsible for the implementation of monetary policy in PNG. The goal of monetary policy is to support sustainable medium-term growth of economic activity in the private sector, excluding mining and petroleum which are wholly financed offshore. It aims to maintain stable levels of the exchange rate, interest rates, prices and credibility in international financial markets and institutions.
The Bank relies on trade in government securities as the principal tool of monetary and liquidity management. In 1995 the Bank will introduce a monetary management facility, the rate on which will become the key official rate, as it will determine the price of liquidity at the margin. The facility will take the form of a kina auction, in which the Bank can both offer and buy kina.
The Bank has used a Minimum Liquid Assets Ratio (MLAR) raising the total deposit requirement of commercial banks from 11% to 32% but it does not foresee using it as an active policy instrument in the long term.
Although the Bank no longer sets a target for credit growth, it monitors it as a key indicator of economic activity. On 10th October 1994, PNG moved from a fixed exchange rate to a floating exchange regime. The exchange rate is now determined by the demand for and supply of foreign currency in the market through an auction system held once a day. Exchange rates between the kina and other currencies are set by commercial banks based on the closing rate of the previous days auction.
The Bank of Papua New Guinea looks after the control of flows of money in and out of the country. It does this on behalf of the Government and the main aim is to conserve the country’s holdings of foreign exchange. Six commercial banks are allowed to deal in foreign exchange for transactions up to K500,000 per annum. Amounts above that are referred to Bank of Papua New Guinea for approval.
Permission is readily given for payments overseas for imported goods and services and transferring overseas the earnings on investments in PNG by residents of overseas countries. People departing permanently from PNG are free to take or send the entire value of their assets out of the country when leaving. People travelling to overseas countries are able to take sufficient funds to meet their needs while absent from PNG.
The Bank closely monitors all large capital inflows. Approval is required for all overseas investments in PNG.
The Bank acts as banker to the government as a Temporary Advance Facility. It also acts for commercial banks, for stock registry and a small numismatic and collector’s currency operation.
Finally it issues the Quarterly Economic Bulletin, which provides a detailed commentary and analysis of current economic and financial conditions, backed by a comprehensive range of statistics on the financial sector, the domestic economy and the balance of payments.
The quarterly employment survey and six monthly visits, to interview businesses in major regional centres around the country, provide the most timely information available about recent economic conditions and expectations for the short term.