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Tasks
and functions of the NRBT The
National Reserve Bank of Tonga Act formulates the principle purposes of
the NRBT as follows:
- To
regulate the issue of currency, and the supply, availability and international
exchange of money. The NRBT has the sole right of issuing
currency in the Kingdom of Tonga.
- To
manage the external reserves of the Kingdom. The NRBT manages the
official foreign reserves of the country. These reserves
consist of accumulated foreign currency, which are primarily used
for the payment of imported commodities. To be sure that the country
would not run out of foreign exchange, the NRBT pursues a policy of
maintaining a level of reserves that covers at least three months
of imports.
- To
promote monetary stability. Monetary stability can be
translated as price stability. Price increases (inflation) or decreases
(deflation) can have a major disruptive impact on the economic process
and the society as a whole. Against this background, the NRBT pursues
a policy of containing changes in the general price level.
- To
promote a sound financial structure. For a favorable
economic development it is important to have a strong, efficient and
smooth functioning monetary/financial system. The NRBT is responsible
for creating the conditions of such a system. In 1993 the NRBT licensed
two more commercial banks as a result of which competition in the
financial system increased. More competition usually leads to improved
efficiency in the banking sectors, borrowing lower costs for customers
higher returns for depositors.
- To
foster credit and exchange conditions conducive to the orderly and
balanced economic development of the Kingdom. This task
is closely connected with the task of promoting a sound financial
structure.
- To
provide advisory services to the Minister on banking and monetary
matters. The Ministry of Finance and the NRBT are the
two monetary authorities in the Kingdom – the institutions are
said to have a ‘shared monetary responsibility’. Therefore,
it is important that there is coordination of fiscal policy (Ministry
of Finance) and monetary policy (the NRBT). This explains why the
NRBT has, among other things, an advisory task to the Minister of
Finance. The advisory task mainly comprises informing the Minister
of monetary developments and the developments of the official reserves.
Equally important is the consultation of the NRBT by the Ministry
of Finance on the preparation of the Government’s budget.
- To
be the principal banker and fiscal agent of the Government.
Like most organizations, enterprises and individuals, the Government
needs a bank. In Tonga the Government not only banks with the NRBT
but also with commercial banks. Acting like a banker to the Government
implies that the Government can deposit funds with the NRBT and make
withdrawals when it has to make payments.
- To
undertake banking business, in Tonga or elsewhere. Although
the NRBT is allowed to do normal banking business in Tonga, it has
a special relationship with the commercial banks. It not only gives
guidance to the banks with regard to monetary policy, but the NRBT
also operates as the ‘bankers’ bank’. It can happen
that a bank falls temporarily short of money and that the funds they
need can not be borrowed from other banks. Under such circumstances
the banks can always recourse to the NRBT.
- To
undertake the licensing and supervision of financial institutions.
The NRBT is the responsible institution for licensing of new banks
and for liquidity support, supervising licensed financial institutions.
It carries out this function according to the provision of the Financial
Institution's Act 1991 (refer to Regulatory Framework).
The Reserve Bank undertakes the prudential supervision of licensed
Financial Institution in order to maintain public confidence in the
operation and stability of the financial system and to protect the
interests of depositors.
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