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THIS note aims at analysing
article 146 (1) of the
Constitution, 1979, with a view to
determining whether the article
introduces innovations with
respect to the status and
functions of the Bank of Ghana.
Article 146 (1) directs that, “The
Bank of Ghana shall operate as a
central bank and shall be the only
authority to issue the currency of
the state of Ghana.” As a
preliminary point it can be stated
that the Constitution did not seek
to establish the Bank of Ghana,
but rather having recognised its
existence, directed it to “operate
as a central bank” It can also be
stated that Ghana is a developing
country and accordingly the
operations of its central bank
would conceivably not be like
those of the more developed and
highly sophisticated countries
whose economic and social milieu
are different.
WHAT IS A CENTRAL BANK
It is difficult to give a legal
definition of the term central
bank, a term which Hans Aufricht
has indicated as being only 50
years old.1 The Constitution,
1979, does not provide any
assistance in terms of definition
either. The Shorter Oxford English
Dictionary defines “Central” to
mean2:
“1. of or pertaining to the centre
or middle; situated in, proceeding
from containing or constituting
the centre;
2. Chief, leading, dominant,
controlling the branches (opp. to
local).”
This definition of “central” is
apt in that it describes concisely
the position of central banks in
an economy to be in the centre of
the financial and banking system.
They serve as the focal point
around which the financial and
banking system revolve. In effect,
a central bank, oversees the
financial institutions and the
banking system, watching their
performance and providing the
necessary lubrication and
servicing of their delicate parts
when necessary to ensure their
smooth performance. A central bank
is expected to be more informed or
knowledgeable or both and
experienced in the art of finance
and banking so that it can be in a
position to supervise and forecast
the effect of any banking or
financial move. A central bank
should know the economy in which
it operates well so that it can
forecast the effect of banking
policies or acts within the given
economy. Originally central banks
were known and called “Banks of
Issue” depicting the primary
responsibility of central banks
which was the issuance and
regulation of currency in the
given economy. With the passing of
time, there developed the
awareness of the necessity of
centralised direction for the
emerging mechanisms of monetary
control.
Perhaps it is for the above
reasons that a central bank has
been defined as3:
“A bank that deals mainly with
other banks and the Government and
assumes broad responsibilities in
the interest of the National
economy, apart from the earning of
profits (as by regulating the
volume, character and cost of
outstanding bank credit).”
Despite the definitions quoted
from the two highly esteemed
dictionaries, the point has to be
stressed that there does not
appear to be a legally binding
international definition of the
term central bank. As Hans
Aufricht points out Hans
Aufricht,4, “Central Banks are,
above all, institutions
established by virtue of law; and
their powers and functions are
derived from specific legal
rules.” Perhaps one could safely
agree with Hans Aufricht and say
that central banks may be
identified by reference to their
functions and responsibilities
which functions and
responsibilities can often be
generalised in the following
terms5:
(a) to regulate the monetary
system in general;
(b) to regulate the issue and
circulation of currency and the
supply of money;
(c) to regulate credit, including
the “legal” or minimum reserves to
be maintained with the central
bank; and
(d) to centralise the
international reserves of the
country.
Don Fair, writing in the October
1979 issue of The Banker appeared
to have re-echoed Hans Aufricht’s
suggestion when he said7:
“Central Bank responsibilities in
the field of monetary management,
and particularly in monetary
policy making and policy execution
in the public interest, are common
to almost all central banks in
some degree.”
(Writer’s emphasis.)
Central banks as creatures of
statute derive their powers and
functions from stipulation
contained in their enabling Acts
or Charters and it is usual to
find such Acts or Charters
empowering the given central bank
to perform most if not all the
functions generalised above. The
state of development of the
banking network and the economy
would generally influence the
detailed functions a given central
bank may be entrusted to perform.
Thus, in Ghana, the objects of the
Bank of Ghana as found in section
3 of the Bank of Ghana Act, 1963
(Act 182), are:
“...(a) to issue and redeem bank
notes and coin;
(b) to administer, regulate and
direct the currency system;
(c) to regulate and direct the
credit and banking system in
accordance with the economic
policy of the Government and the
provisions of this Act;
(d) to promote by monetary
measures the stabilization of the
value of the currency within and
outside Ghana;
(e) to propose to the Government
measures which are likely to have
a favourable effect on the balance
of payments, movement of prices,
the state of public finances and
the general development of the
national economy and monetary
stability;
(f) to do all such things as are
incidental or conducive to the
efficient performance of its
functions under this or any other
enactment.”
The first five objects as
enumerated above clearly fall
within the category of functions
generalised in Aufricht’s book
referred to above.
The sixth object is an omnibus
clause and appears to have been
added so that the bank can
determine what other functions to
perform under given circumstances.
In effect it is the express
statutory stipulation or the
nature of the objects of the
banking institution which
determines whether a given legal
entity is a central bank.
THE STATUS OF THE BANK OF GHANA
The Bank of Ghana, now directed
under article 146(1) of the
Constitution, 1979, to operate as
a central bank was established by
the Bank of Ghana Ordinance (No.
34 of 1957). The long title to the
Ordinance indicated that it was
“An ordinance to establish a
central bank” (Writer's emphasis).
Section 2 of the Interpretation
Act, 1960 (C.A. 4), stipulates
that, “The long title and the
preamble form part of an Act
intended to assist in explaining
the purport and object of the
Act.” It is therefore arguable
that the Bank of Ghana was
established by the Ordinance to be
a central bank. In 1963, the Bank
of Ghana Act (Act 182), was
enacted. Section 1 (1) of Act 182
stipulates:
“1. (1) On the coming into
operation of this Act the Bank of
Ghana established under the
provisions of the Bank of Ghana
Ordinance (No. 34 of 1957) shall
continue to operate subject to the
provisions of this Act as a body
corporate with perpetual
succession and a common seal; and
may sue or be sued in its
corporate name.”
(Writer’s emphasis) It is
therefore submitted that the
effect of the Act was to assure
the continued existence of the
bank as a central bank, whose
operations were thenceforth to
conform to the provisions of the
Act. Furthermore, the objects for
which the Bank of Ghana was
established are the types which
central banks usually and
generally perform. Therefore, with
respect to the matter of status,
article 146 (1) of the
Constitution, 1979, does not
appear to create a new status for
the Bank of Ghana.
What may be argued to be
innovative and a clear improvement
is the fact that now the bank has
been given constitutional
recognition as a central bank so
that a repeal of Act 182 would not
affect the central bank status of
the bank though an amendment of
article 146(1) to the contrary
could affect the central bank
status of the bank. In effect, the
central bank status of the bank is
now made more certain by virtue of
the constitutional recognition
thereof.
The Functions and Responsibilities
of the Bank of Ghana
As already pointed out, article
146 (1) of the Constitution
directs the Bank of Ghana to
“operate as a central bank.” It is
difficult to understand what
precisely is meant to be the
effect of the phrase
“operate as a central bank.” For
example, does the phrase refer to
the functions which the bank as a
central bank can perform; or does
it refer to the means which the
bank as a central bank should use
to realise its objects?
If the phrase refers to the
functions which the bank should
perform, then it has to be
re-emphasised that though the
functions of central banks could
be generalised as indicated above,
the generalisation does not
constitute the sum total of all
the functions a central bank may
perform. Indeed a central bank may
perform all the generalised
functions, but it is possible to
find that because of the social
milieu, state of development of
the banking system or network and
the economic situation in a given
country, the central bank may be
asked by its enabling Act or
Charter to do additional things in
the national interest which other
central banks may not do.
Thus the general object as
specified by object (f) in section
3 of Act 182 gives the bank power
to do things “incidental or
conducive” which would enhance its
efficient performance. This
stipulation gives the bank
discretion to choose the other
range of responsibilities it
intends pursuing in the national
interest. In effect, it can be
argued that object (f) in section
3 of Act 182, is now supplemental
to and in consonance with article
146 (1) in that under it, the bank
can determine what additional
functions to assume as a central
bank. Perhaps, it is in view of
the incompleteness of the
generalised functions that Don
Fair conceded that7 “the range of
responsibilities of central banks
differ greatly from country to
country.” Consequently, it is
submitted that even now it is Act
182 and the several other Acts
such as the Exchange Control Act,
1961 (Act 71), the Banking Act,
1970 (Act 339), affecting the
bank—that one must always look to
discover the full range of
responsibilities of the Bank of
Ghana.
If the phrase refers to the mode
of realising the objects then
again, the point has to be made
that there is no internationally
binding mode through which a
central bank operates. It is
conceded that many central banks
do realise their objectives mainly
through their dealings with the
other banks, the financial
community and the government as
Webster says. This can be done
through the control, direction and
supervision of the banks or the
giving of advice to the
government. But then again, it is
possible to find that the
provisions of an enabling Act or
Charter, may be so framed that it
leaves the central bank the
discretion to determine how it
will set about realising its
objects, including possibly
dealing directly with the public
instead of through the banking or
financial community. Ultimately
the circumstances prevailing in
the given economy would greatly
influence the mode of operation.
Thus, in Ghana, the Bank of Ghana
is empowered among other things to
“effect foreign exchange
transactions of any kind”: see
section 23 (c) of Act 182. And,
“within the limits of its policy,”
the bank can undertake stated
types of “credit operations with
individuals, public institutions
or bodies corporate whether
private or public . . .” (section
28 of Act 182). Section 23(c) does
not define the clientele for whom
the services may be performed. It
could therefore be argued that the
section would allow the bank to
indulge in matters like
establishing letters of credit
directly for individuals or even
granting credit or financial
accommodation directly to
individuals. However, empowering
an institution purporting to be or
operating as a central bank to
even deal with individuals does
not appear, to my mind, to be
irregular or improper, especially
if one considers the fact that the
economic and social milieu of
countries differ greatly even in
terms of the development of the
banking network or the
sophistication of the citizens.
What is crucial is that by making
adequate or wide provision for the
exercise of powers of this nature
by the bank, there is allowance
for flexibility and choice of
methods to be adopted to realise
the stated objectives, under given
circumstances. For instance, the
power to deal even with
individuals may not be exercised;
but its existence would ensure
that if the bank determines that
it is necessary to deal even with
individuals so as to realise the
national objectives, the bank
would not be handicapped because
of statutory restrictions. Judging
from the provisions of sections 23
and 28 of Act 182 as well as other
provisions of Act 182 not
discussed here, one gets the
impression that the Bank of Ghana
has been given well and adequate
powers to function effectively as
a central bank. It is thought that
the ability of the bank to
appreciate the scope of the
powers, devising the most
effective mode for their exercise,
as well as the timing would to a
large extent determine the success
of the bank. It is suggested that
the choice of the mode should
always be influenced by
developments in the economy such
as existence of an efficient
capital and securities market,
honesty in the banking system in
the utilisation of foreign
exchange and the sophistication of
the citizens.
It has been argued in effect that
the provisions of the Bank of
Ghana Act are not inconsistent
with central bank operations. Why
then did the fathers of the
Constitution find it necessary to
expressly stipulate in article 146
(1) that, “The Bank of Ghana shall
operate as a central bank?” Among
the several veiled indictments of
the Bank of Ghana in the
Constituent Assembly, the point
was made that the Bank of Ghana
though set up as a central bank
was “operating as a commercial
bank by issuing and opening
letters of credit, making
transfers and competing with the
commercial banks.8” It was thought
that the Bank of Ghana cannot
carry out its central banking
functions “if it at the same time
carries out certain commercial
bank operations.”9 Again it was
felt that “the time has now come
for us to make the central bank
operate as a proper central bank
and instead of competing with the
commercial banks, to concentrate
on ways and means of obtaining
foreign exchange for this
country.”10 (Writer’s emphasis.)
It seems to your commentator that
the accusation of the bank as
doing commercial banking stems
from the bank’s foreign exchange
operations and the letters of
credit business. As earlier
pointed out, there appears to be,
nothing inherently wrong with a
central bank directly providing
funds occasionally or
exceptionally to facilitate the
timeous procurement of much needed
imports under crisis
circumstances. Indeed, the point
was conceded in the Constituent
Assembly that "there may be a
situation where the Bank of Ghana
should be allowed to issue letters
of credit for example on behalf of
Government.”11 It is thought that
if items of importance to the
economy do not get foreign
exchange cover from the commercial
banks, the Bank of Ghana should
feel free to provide the foreign
exchange itself instead of giving
same to the commercial banks as
part of its general foreign
exchange allocation. But then,
caution must be sounded that the
powers should be sparingly
exercised.
MATTERS ARISING
Following from the direction to
operate as a central bank, certain
issues arise for example with
respect to the question of control
over the bank’s operations. How
independent, for instance, should
the bank be from the government?
Again this matter is not one for
which a generally accepted
treatise exists. Don Fair believes
that, “Today, there is no real
case for central bank independent
from government, but the degree of
independence within government
varies greatly.”12 Some central
banks such as the Bundesbank of
West Germany are very independent
of government. Others are
independent “within government,”
as is the case of the Bank of
Ghana and the Bank of England in
that government exercises
self-restraint and so invariably
leaves the bank alone. The bank
has exclusive jurisdiction under
section 15 of Act 182 over the
issue of the currency of the state
of Ghana. How would sections 15-22
now he implemented? Are those
sections no longer applicable? It
is thought that those sections are
ancillary to article 146(1) and
may now be regarded as providing
fuller details on the
implementation of the article. It
is also thought that it would
still be in order for both the
bank and the government to
co-operate in such a way as to
ensure harmony on the currency
issue. Under article 146(3), the
Governor of the Bank also has
power to disallow transaction
which he finds to be not in
accordance with law. Here the
Governor has to act according to
law; so his independence of action
appears not to be absolute as he
has to ensure that his own
decisions are supportable in law.
To do his work well in accordance
within article 146(3), the
Governor would have to make a
maximum use of his legal advisers
to avoid peremptory legal
challenges to decisions he may
take in pursuance of the said
article. Article 146(2) also
expressly designates the bank as
the sole custodian of state funds
both in and outside Ghana. Does
the bank as custodian derive any
exceptional powers over the safety
of state funds? It is thought
that as such custodian the bank
should endeavour to find ways and
means of adding to and managing
the country's foreign currency
well. Apart from the above cited
constitutional stipulation on the
relations with government, Act 182
also has other provisions on this
as appears in Part V.
CONCLUSION
In conclusion, it is reiterated
that the Bank of Ghana Act, 1963
and the several other Acts
affecting the bank's operations
will still continue to regulate
the operations of the bank,
subject to the express
responsibilities placed on the
bank and the Governor by article
146 of the Constitution. Perhaps
the foremost innovation of the
Constitution is the possibility of
the bank or individual members of
staff as well as the Governor
being taken to court for their
action or inaction. Ghanaians are
predictably litigious and all
concerned are hereby put on guard.
Finally, it has to be stressed
that however independently a
central bank is established, “it
would remain dependent upon the
administration, not merely to
avoid conflict, but also to
participate actively to make its
monetary policy effective.”13
FOOTNOTES
*
LL.B., Barrister and Solicitor.
1. See Hans Aufricht, Central
Banking Legislation (1962), Vol.
I, p. viii
2. (3rd ed.) Vol I at p. 283.
3. See Webster’s Third New
International Dictionary of
English Language (Unambridged), p.
363.
4. Hans Aufricht, A Comparative
Study of Central Bank Law (1965),
para. 2. P ix. 5. Ibid. at pp.
26-27.
5. See Don Fair, “The Independence
of Central Banks” The Banker,
October 1979 at p. 31
6. Ibid. at p. 31
7. See Constituent Assembly 1979
Draft Hansard (Government
Printer), p. 24.
8. Ibid. at p. 27
9. Ibid. at p. 24
10. Ibid. at p. 26.
11. Note 6 above at p. 31.
12. See Don Fair note 6 above at
p. 33.
13. LL.B. (Ghana), Legal Officer,
Bank of Ghana; Barrister and
Solicitor of the Supreme Court of
Ghana.
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