The Seychelles Currency Board: 1936-1978
Central Banking in the Seychelles started as far back as 1936, with the establishment of the Seychelles Currency Board, similar to other British colonies of the time. The Seychelles Notes Ordinance and the Coinage Ordinance of 1936 bestowed the responsibility for the issue and redemption of Seychelles currency on the Colonial Secretary and later, with the Financial Secretary, acting as Currency Commissioner.
Almost forty years later, under the Seychelles Currency Act of 1974, the issue, re-issue and redemption of currency became the joint responsibility of the Financial Secretary and the Accountant General (the Board), appointed as Currency Commissioners with the Treasury acting as agent. One important change relative to the previous set-up was that the colonial government granted the Board the authority to hold and manage all the domestic and foreign assets of the country. The Board however did not have the power to formulate or conduct monetary policy nor to act as the lender of last resort and supervise the banking sector. The issuance of domestic currency was constrained by the requirement that each issue be backed by foreign currency. However, a fiduciary issue of not more than 30 per cent of total issued currency against securities issued or guaranteed by the Government of Seychelles was possible. Similarly to other colonies, the domestic currency - Seychelles Rupee - was pegged at R13.3333 to the Pound Sterling.
The Seychelles Monetary Authority; 1978 - 1982
The weaknesses of the Currency Board were uncovered by its inability to adapt and assume control over a rapid expansion of the domestic banking sector in the seventies brought about a by a boom in tourism. With the Board having no mandate to undertake monetary policy, adherence to a fixed exchange rate regime, implied that the domestic money supply would fluctuate according to the flows of external capital. This situation was as expected not favourable to stable and sustainable economic development. As a result, in August 1976, an International Monetary Fund (IMF) Mission at the invitation of the Seychelles government undertook a study of the financial system and recommended structural and operational improvements in the Currency Board system.
Following IMF recommendations the government firmly decided to create a central banking institution to regulate money supply, to supervise the banking system and generally to foster financial conditions conducive to orderly and balanced development. . However, given the rudimentary structure of the financial system and the lack of local expertise, it was decided that, as an interim step, a Monetary Authority be set up, with the establishment of a fully fledged Central Bank planned for a later date. Hence, on November 24, 1978 the Seychelles Monetary Authority Decree was enacted and the Seychelles Monetary Authority (SMA) was founded under this decree on December 1, 1978. All the responsibilities, as well as the assets and liabilities of the Currency Fund established under the Seychelles Currency Act, 1974 were transferred to the Authority.
The SMA functioned very much like a Central Bank. The 1978 Decree empowered it with the necessary tools to enable it to achieve its objectives. These included (but were not limited to) the issue of currency, the management of external reserves, banker and lender of last resort to government and commercial banks and inspection of banks and other financial institutions. The most important difference with its predecessor was that the Authority was given the responsibility for monetary policy, thus enabling it to set monetary instruments such as interest rates and credit controls to achieve certain desired objectives. However, the 1978 Decree provided for a Board of Directors comprising of three members; one of whom was the Permanent Secretary of Finance; another being the Accountant-General; and the third being any person as may be appointed by the President. This was to ensure that the Authority consult closely the government, mainly the Department of Finance, in its capacity as Financial and Economic Advisor.
On the technical front, the tasks of collecting and compiling of monetary and banking statistics was transferred from the Government Statistics Office to the Research Department of the SMA. Soon after, the Authority also commenced to compile Balance of Payments statistics and took over the handling of the IMF accounts and Reserve Tranche position from the Treasury. The Authority received the first allocation of SDR 135,200 on January 1, 1979. In February 1979, the administration of the Banking Ordinance 1975 and the Banking (Special Provisions) Act 1976 was transferred from the Registrar General to the Monetary Authority.