Bank of Namibia

Roles of the Bank


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Frequently Asked Questions: Roles of the Bank

Members of the public cannot hold an account with the Bank of Namibia because the Bank does not provide banking services directly to the public. It only provides banking services to the commercial banks and the Government and manages accounts for them.

The Bank of Namibia is Namibia's central bank. It is the only institution entitled by law to issue Namibia Dollar notes and coins, which are distributed to the public through the commercial banks. While the commercial banks are privately-owned, the Bank of Namibia is fully-owned by the Government of the Republic of Namibia and is responsible for certain functions. These include supervision of banking institutions operating in the country in order to ensure efficient and sound banking system in the interest of depositors and the economy as a whole. The Bank of Namibia facilitates the clearing of cheques drawn by the commercial banks customers and the settlement of transactions between banks, lends money to commercial banks against a security when a commercial bank needs liquidity support and grants licenses for new banks. It also provides advice on monetary and fiscal policies to the Government.

The Common Monetary Area (CMA) is a monetary union consisting of Namibia, South Africa, Lesotho and Swaziland. Free movement of capital is allowed within the area, and a common exchange control regime is maintained with the rest of the world. The currencies of Namibia, Lesotho and Swaziland are pegged to the South African Rand on a one-to-one basis.

Both are basically the same. The Bank rate is the rate at which commercial banks, which are temporarily short of cash, can borrow from the Bank of Namibia. The repo rate enables holderBoth are basically the same. The Bank rate is the rate at which commercial banks, which are temporarily short of cash, can borrow from the Bank of Namibia. The repo rate enables holders of Securities, principally commercial banks, to acquire funds from the Central Bank by selling the securities and at the same time agreeing to repurchase them at a later date at a predetermined price. Changes in the Bank rate and the repo rate signal the interest rate policy direction that the Bank of Namibia would like to adopt at any point in time. Increases in these rates indicate a desire for a contraction in credit while decreases reflect a relaxation of interest rate policy. Why is the South African Rand legal tender in Namibia but the Namibia Dollar not legal tender in South Africa?d legal tender in Namibia until such time that the Namibian authorities decide to terminate it.

Monetary policy is the exercise of the central bank's control over the quantity of money and interest rates to promote the objective of national economic policy. Using tools of monetary policy, the central bank can affect the volume of money and credit. A monetary policy aims to achieve maximum economic performance over time. A growing support has emerged endorsing the concept of price stability as the principal objective of monetary policy in order to create an environment conducive to sustainable output and employment.

Inflation is the general increase in prices of goods and services in an economy. The Central Bureau of Statistics collects information on prices of a wide variety of goods and services every month and uses the data to calculate price changes for these sets of goods and services. There are various indexes that measure different aspects of inflation, but the most commonly known index is the Consumer Price Index (CPI), which is used to measure inflation for purchases by private households. Currently the CPI calculation is based on data from the Windhoek area. Inflation is a worrying phenomenon because it reduces the purchasing power of an individual's disposable income and thus lowers the standard of living. This problem is particularly pronounced for those on fixed income, for example, pensioners, because their income does not keep up with the rise in inflation.

Interest rate is the price of money; it is the rate paid to lenders by borrowers in return for the use of money, normally expressed as a percentage of the amount borrowed per year. The level of interest rate plays an important role in an economy, and for that reason interest rates are often used by the central bank as a policy tool to manipulate the economy in the interest of promoting growth and controlling inflation. For example, if demand for goods and services in the economy is depressed, the central bank may lower interest rates to stimulate the demand for credit and hence the demand for goods and services. Conversely, excessive demand can be reduced by the increase in interest rates.

It is the percentage of banks' total liabilities to the public (deposits), which they are legally required to keep in reserves at the Bank of Namibia. This serves as a guard against unsound credit policies that could make it impossible for institutions to honour their obligations, but may also be used as a monetary policy tool. The reserve requirement is one of the powerful policy tools for influencing commercial banks' ability to extend loans. Lowering the reserve requirement increases the banks' ability to make more loans, thus tending to expand the money stock and to lower short- term interest rates. Raising the reserve requirement restricts the banks' ability to make more loans available to borrowers, thus tending to shrink the money stock and to raise short-term interest rates.

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