##borone ( see www. bankofbotswana. bw ). annual report 2002, bank of botswana, gaborone ( see www. bankofbotswana. bw ). the day, and that the quality of customer service is constantly improved in line with international best practice. this level of attention to high standards of corporate governance and professional conduct has meant that there has been no bank failure in botswana. the closure of the bank of credit and commerce international ( bcci ) in 1991, was due to its global problems and not its domestic operations. 8 mr chairman, earlier in my remarks, i highlighted that the success of a central bank in fulfilling its mandate depends on two factors - the environment in which it operates, and its own competence in carrying out its duties. it goes without saying that there has to be a favourable and supportive environment which should facilitate the carrying out of the mandate. after all the central bank, related institutions and agencies are a means of implementing the strategies aimed at attaining an overall shared vision or goal for the country as a whole. these institutions serve a larger national goal ; hence there is need to generate synergies in their activities if the overall national objective is to be achieved. one of the synergies that crucially influences the effectiveness of a central bank ’ s role in macroeconomic management is its relationship with government. of necessity, this relationship must be close. the central bank is “ the government ’ s bank ” ; the government is typically the largest or only shareholder of the central bank ; and central bank functions typically involve providing a range of services to government. what is important, however, is that the relationship is clearly defined ; the central bank should be independent of the government particularly with respect to the important central banking function of maintaining monetary and financial stability. central bank independence has several dimensions. first, there must be a clear specification of objectives and allocation of unambiguous policy responsibilities. second, there should be a prohibition on government intervention or interference in the formulation or implementation of policy decisions relating to the responsibilities allocated to the central bank. third, there should be restrictions on government actions, such as borrowing from the central bank, that might compromise the bank ’ s ability to formulate and execute policy. fourth, there should be a prohibition on government interference in the execution of duties by officers of the bank. it should be noted, however, that central bank independence is not absolute. many central banks that have independence in the formulation and implementation of monetary

consistent and transparent macroeconomic policies, derived through a transparent process of consultation, analysis and discussion, with a leadership that is honest and unselfish, should help the second transformation to be completed as relatively successfully as the first. mr chairman, with this background, it is now time that i focus on the central point of my remarks - that is, the role of the central bank, in this case the bank of botswana, in the achievement of botswana ’ s economic transformation. the bank ’ s contribution to the policy environment, and the role it plays in achieving the broader national goals, is spelled out in the mandate given to it by parliament. 5 in general terms, it is a supportive role, as it is for almost all central banks in the world. specifically, the bank has, as its primary responsibility, to promote, and when achieved, to maintain monetary and financial stability. while the bank has many tasks to perform, such as, to issue the national currency, to assist the development and functioning of an efficient payments mechanism, to implement the government ’ s exchange rate policy, to manage the country ’ s foreign exchange reserves, and to provide advice and banking services to the government, all of which are important in themselves, what is of paramount importance is the achievement of monetary and financial stability goals. this is a supportive role because none of these objectives are ends in themselves ; the bank pursues them as means towards the greater end of sustainable national economic growth and development. as i noted earlier, one of the most important elements of a successful economy is a stable macroeconomic environment, which can only be achieved by pursuing sound and consistent economic policies. it is not something the bank can do alone ; every organ of the economy has a role to play. the bank ’ s part is to foster monetary and financial conditions that are conducive to an orderly, balanced and sustained development or - in the language of this event - to engage in the transformation of the economy through the combined efforts of government, private individuals and businesses, both domestic and foreign. little of what i have alluded to should be new to this well - informed group. not only are these underlying principles and objectives of a central bank embodied in the nepad initiative, it is also a message i believe you will have heard many times from your own central bank, under the able leadership of my counterpart and friend, governor sanusi, and most likely from every other central bank governor who takes the time to discuss these issues in