The Political Economy of Central Bank Effectiveness: The Case of National Bank of Rwanda

Abstract

In a survey conducted in Rwanda by the Pockets of Effectiveness project, the Central Bank was listed as among the top-performing government organisations in the country. This paper examines the political determinants of the portrayal of the National Bank of Rwanda's (BNR) achievement of its mandate: promoting price and financial stability. The paper uses the political settlements framework to highlight the political determinants of financial sector reforms in the country. Rwanda's underlying political economy-and particularly the government's evolving relationships with domestic capital vis-à-vis foreign capitalhas contributing to shaping the Rwandan financial sector's trajectory. In particular, the Rwandan government has prioritised a strategy of being a financial sector hub, which is based on increased global financial integration and portraying the achievement of 'best practice' reforms. These goals have come at the cost of traditional developmentalists goals for central banks, including direct lending for structural transformation. BNR has achieved success in its mandate. However, achieving success in its market-led mandate reduces the policy tools at its disposal to promote structural transformation. The paper argues that reforming BNR along neoliberal lines has mirrored the broader macro-strategy of the country, with the ruling Rwandan Patriotic Front (RPF) choosing to rely increasingly on legitimacy with external actors, rather than supporting the growth of strengthening domestic statebusiness relationships to support economic transformation.

Researching Africa and the offshore world

“…Arriola (2013) discusses banking and access to credit in African competitive politics. For more recent work auguring renewed interest in the politics of finance, see, e.g., the Africa chapters in the excellent Jones (2020); Engebretsen and Soares de Oliveira (2020); Ennes Ferreira and Soares de Oliveira (2019); Pitcher (2018); Behuria (2020); and Dafe (2019Dafe ( , 2020. 31 There is, in this regard, an apolitical and sometimes inadequate literature on African banking.…”

“…For more recent work auguring renewed interest in the politics of finance, see e.g. the African chapters in the excellent Jones (2020); Pitcher (2017), Dafe (2019, 2020), Ennes Ferreira & Soares de Oliveira (2019), Behuria (2020 a ), Engebretsen & Soares de Oliveira (2020), and Adeyemo (2021).…”

Does banking regulatory regime affect the quality of bank earnings in the East African region?

“…In Rwanda, the financial institutions are regulated and supervised by the National Bank of Rwanda (NBR) (National Bank of Rwanda, 2021), whose mandate is to ensure an adequate level of liquidity, financial stability and financial system soundness by regulating the level of capital adequacy and minimum reserve ratios. The prudential regulations set by NBR ensure that depositors and consumers are well-protected against any economic shocks that might affect the financial systems (Behuria, 2020; Mwenda, 2018; National Bank of Rwanda, 2021).…”