A SHORT SYNTHESIS OF CENTRAL BANKS IN THE MIDDLE EAST REGION

A Final Project for the Course Title “Monetary Policy and Central Banking”

Presented to: Professor Glenndon Sobrejuanite

Prepared by:

Sam Adrian Mamalis

Jaselle Sanchez
Raye Lumeran
Cheng Lingan
Bryle Cahilog
Brian Glang

2022 May
l. INTRODUCTION

There are a total of 17 central banks in the Middle East. In this paper, only

three will be covered, however. The remaining central banks were distributed to the

other members of this group.

1. Bank of Israel

This was founded in the year 1954 which is located in Jerusalem. The bank of

Israel has a satellite in Tel Aviv, the capital city. Also, it has extended its banking

supervision in Tel Aviv as well.

2. Central Bank of Bahrain

It is also called CBB. The Central Bank of Bahrain was made possible with the

help of the Central Bank of Bahrain and the Financial Institutions Law in 2006

September. From 1973 until its creation, Bahrain Monetary Agency was responsible

for functions related to central banking and regulations.

3. Central Bank of Egypt

1961 was the year when the Central Bank of Egypt began its operation. It

replaced the National Bank of Egypt in its central banking activities from the

beginning of that year. Its authority to exercise central banking functions was through

its constitution in 2003 and a presidential decree.

ll. THE CURRENCY

1. Bank of Israel

New Israel Shekel is the official currency of Israel. According to its website,

the Bank of Israel issued new banknotes of NIS 20 and 100 on 1999 January. Later

on the same year, it added NIS 50 and 200 into the circulation. These newly issued

banknotes were no different from the old ones. The central bank simply made the

banknotes hard to forge.

The third series of NIS was issued 15 years later. The notes looked differently

having Hebrew poets on them. It also improved its security features which protects
them from counterfeits and includes a feature specially designed for the visually

impaired and the blind. All denominations were the same as before.

As for coins, it was issued together with the first issuance of the New Shekel

in 1985 September. Coins still considered a legal tender are 1, 5, and10 Agora, NIS

½, 1, 2, 5, 10. New Shekel 5 and 10 were put into circulation five and ten years after

the others, respectively. NIS 2 is the newest coin as it was officially issued in 2007.

2. Central Bank of Bahrain

Not before the Currency Board of Bahrain designed and put the new family of

Bahrainian Dinar into circulation in the ’65 October, the country’s official currency

was Gulf Rupee. They first issued banknotes with denominations of Bahrain Dinars

10, 5, 1, ½ and ¼. As for coins, it is called 100, 50, 25, 10, 5, and 1 fils. BD 1 is

equivalent to 1000 fils. Eight years later, Bahrainian Monetary Agency was

established.

In 1978, the Agency issued a new set of banknotes with denominations of

BD20, 10, 5, 1 and ½. It stopped issuing BD ¼ and added BD 20 instead. The coins,

however, remained the same.

Five years after that, the currency got an upgrade adding security features on

it to protect them from counterfeiting. In that same year, it issued another set of

banknotes. It consisted of new BD 20, 10, 5, 1, and ½. As for coins are the following:

100, 50, 25, 10, and 5 fils. It did not include 1 fils anymore.

Two years after CBB replaced Bahrainian Monetary Agency, it issued their

new and current banknotes: BD20, BD10, BD5, BD1 and BD1/2. Coins are still the

same since the third issue. On its website, photos can be found and its development

through the years.

Link: https://www.cbb.gov.bh/currency-issue/

3. Central Bank of Egypt

Long before the CBE issued banknotes of different denominations, it did not

have any official tender. The country had what it called bimetallic system - silver and

gold coins - until the Egyptian Pound was created in 1836. Egyptian Pound is also

known as LE or libre égyptienne, a French term.

Silver got unstable, and most countries trading with Egypt were using the idea

of gold standard. So, the country started using it. In 1885, its monetary law was

reformed. Under the new reform, the gold standard had been the foundation of

Egypt's monetary system. Unfortunately, there was a short supply of gold coins

which had allowed a number of currencies such as Sterling pound to be considered

an official legal tender.

This had been going on not until 1898 when the National Bank of Egypt was

created issuing banknotes. And by 1914, LE banknote became its official legal

tender. 54 years later, the CBE issued banknotes of different denominations: 1, 5,

10, 20, 50, 100 and 200 LEs. As for coins: 5, 10, 20, 25 and 50 piastres.

lll. THE CENTRAL BANK GOVERNOR

1. Bank of Israel

Professor Amir Yaron is its current governor. From the 2018 December, he

began overseeing central banking-related activities. Reuven Rivlin, the president at

that time, appointed him and that was how he got the position. The governor is

known for his expertise in different areas such as economics and finance. And
before he got this job, the professor had been involved in various academic-related

associations, and even won the Stephen Ross Award in 2019.

2. Central Bank of Bahrain

Hassan Khalifa Al Jalahma is the current Chairman of its Central Bank since

2020 of May. He was the former Auditor-General of Bahrain.

3. Central Bank of Egypt

The current CBE Governor is Tarek Hassan Amer since 2015 November. He

was a former deputy to the Governor of Egypt.

lV. PILLARS FOR CENTRAL BANKING

1. Bank of Israel

Its presence seeks to (1) keep the inflation at a healthy level, (2) help in

implementing government’s economic policies in terms of “…growth, employment,

and reduction in social gaps,” and (3) maintain the overall financial system stable.

2. Central Bank of Bahrain

The pillars of its central banking are outlined in the aforementioned law that

gave it the authority to exercise its powers. These are the following: (1) To make and

implement monetary- and credit-related policies; (2) To give the government and

financial sectors an effective central banking services; (3) To shape the financial

sector in a progressive way and boost its confidence, and (4) To guarantee

depositors and customers protection of their interest in financial institutions, and

strengthen the country’s reputation as an “an international financial center.”

3. Central Bank of Egypt

The following are the pillars of the Central Bank of Egypt: (1) To ensure price

and banking system stability; (2) To set and implement monetary-, credit-, and

banking-related policies; (3) To oversee the financial sector and efficient payment

system; (4) To manage how foreign exchange market works; and (5) To supply

banknotes and fix value and specification of it.

V. MONETARY POLICIES AND TOOLS

1. Bank of Israel
 The bank of Israel ensures stability in the price levels. This is to protect the

value of its New Shekel. To achieve this, the Israeli government with the help of the

Bank will keep the inflation rate between 1 and 3 percent annually. Monetary policies

such as expansionary and contractionary monetary policies are set in place to

restore the economic activity to normalcy.

Expansionary monetary policy will cause the interest rate to drop encouraging

households and businesses to borrow money and spend more, thus injecting more

money back into the economy. This happens in times of recession. The opposite

goes to contractionary monetary policy.

2. Central Bank of Bahrain

CBB’s monetary policy is anchored more on its exchange rate with US dollars.

Its peg to the US dollar has been the same for over 40 years now. They believe that

maintaining “a fixed exchange rate between its Dinar and the US dollar” will be an

effective way of keeping a low inflation and steady currency leading to “stable

business environment and high levels of investment.”

CBB lets its retail banks borrow how much and any time they want as long as

it follows the central bank’s policy of interest rates that will influence the retail banks’

deposit and lending rates to savers and customers. Also, the Bank mandates all

retail banks to maintain “unremunerated reserves with the CBB.” This allows the

central bank to tune to the changes in the economy. By doing so, they can fairly

adjust interest rates in the market, but this does not mean controlling the credit retail

banks distributing in the economy. This is merely a way of the Central Bank ensuring

“the liquidity situation in the banking sector is appropriate.”

3. Central Bank of Egypt

 CBE’s monetary policy tools include overnight interbank rate and the corridor

system which has been a part of their policy since mid-2005. In this way, it allows

other retail banks with not enough reserves to borrow from those banks with excess

reserves. Under the corridor system, the CBE is able to determine the corridor

interest rate which happens to be in between the 2 standing facilities, the overnight

lending and deposit rates.

When banks borrow money from the central bank, the interest rate charged

on them is more than the overnight rate. For this reason, overnight rates tend to

fluctuate which then lead to an increased higher interest rate that banks charge to its

customers. By identifying the right corridor rate, this will then make the overnight

rates stable.

Since August 2005, CBE has applied the open market operation tool to

manage liquidity. They either buy (injecting money into the economy) or sell (absorb)

instruments from financial institutions to control the amount of money in the

economy. Also, such a policy tool is made effective through a “publicly announced

auction schedule.”

Along with CPI or Consumer Price Index, an inflation indicator, it developed a

core inflation measure to determine how consumer prices move.

Vl. REFLECTION

I learned that each country has its own monetary policies and tools and these

are widely dependent on history or their relationship with other countries. Though its

primary goal is to keep price levels steady, their approaches are a bit different in
some ways. They keep devising new methods or apply some principle that other

countries do not.

Doing this activity made me understand how money and interest rates work. It

did make sense to me but there are things that are too complex to get because of

the terms I never encountered before such as policy interest rate which is the

discount rate since some regions have their own terminologies.

In the future, hopefully, if I am able to work for the central bank, I am equipped

with the basic knowledge of monetary policy and not get ignorant. I found this subject

very interesting so I guess I’d keep learning things related to it.

LINKS/REFERENCES

https://www.boi.org.il/en/Aboutthebank/pages/about.aspx

https://www.boi.org.il/en/AboutTheBank/OfficeHolders/Pages/AmirYaron.aspx

https://www.boi.org.il/en/Currency/CurrentCurrencySeries/Pages/Default.aspx

https://www.boi.org.il/en/AboutTheBank/ObjectivesAndFunctions/Pages/Default.aspx

https://www.boi.org.il/en/MonetaryPolicy/MonetaryPolicyFramework/Pages/
Default.aspx

https://www.cbb.gov.bh/about-cbb/

https://www.cbb.gov.bh/board-of-directors/

https://www.cbb.gov.bh/currency-issue/

https://www.cbb.gov.bh/monetary-policy/

https://www.cbe.org.eg/en/AboutCBE/Pages/Overview.aspx

https://www.cbe.org.eg/en/BankNote/Pages/EgyptianCurrency.aspx
https://www.bloomberg.com/profile/person/15104168

https://www.cbe.org.eg/en/MonetaryPolicy/Pages/GeneralDefinition.aspx