History

THE CENTRAL BANK OF MALTA 1968 – 2008

The beginning

Following independence in 1964, the Maltese Government sought to establish a central bank. This was first recommended in January 1964 by a UN mission headed by Professor Wolfgang F. Stolper on the grounds that there were serious gaps in Malta's financial infrastructure, particularly concerning advice to the Government on financial and monetary matters.

In response to this recommendation, the Maltese Government sought technical assistance from the Bank of England and the International Monetary Fund to obtain advice on the establishment of a central bank. In February 1967 a senior official of the Bank of England, Dr Philip L. Hogg, arrived in Malta to carry out preliminary organisational and legislative work. Legislation was enacted on 11 November 1967 and five months later, on 17 April 1968, the Central Bank of Malta was formally established. Dr Hogg became the first Governor of the Bank.

The Bank’s operational history until 2008 can be subdivided approximately into three main periods, which reflect the Bank’s evolution over the years from an organization carrying out central banking functions in the context of Malta’s fixed exchange rate regime to an institution which forms an integral part of the Eurosystem, which sets and implements monetary policy in the fifteen countries of the euro area.

1968 – 1994

During this period the Central Bank of Malta focused mainly on the implementation of exchange rate policy, the management of the country’s reserves, the supervision of the banking system, the issue of currency and the provision of banking services to the government, public sector organisations and the banks.

The Bank’s role in implementing exchange rate policy assumed particular significance in July 1972 when the Maltese currency peg to sterling was discontinued and the Bank began determining the exchange rate of the Maltese lira (then the Malta pound) on the basis of a trade-weighted basket of currencies. Exchange rate policy at the time involved the imposition of exchange controls. Following the enactment of the Exchange Control Act in 1972, the Bank was appointed as the agent for the administration of exchange controls – a role which it continued to exercise for a number of years. The Bank was also responsible for the management of the country’s external reserves and was the sole buyer and supplier of foreign currency to the public sector and the banks.

The Central Bank of Malta was also appointed as the supervisor of the banking system in terms of the Banking Act of 1970 and, later, as the supervisor of the Malta Stock Exchange in terms of the Malta Stock Exchange Act, 1990.

In September 1969 the Central Bank of Malta issued its first series of currency notes and, following decimalization in May 1972, its first series of coins. The Bank was also responsible for monitoring the Maltese government’s cash position and for providing it with short-term credit.

1994 – 2002

This period was marked by a notable change in the Bank’s policy orientation as part of an overall modernisation of the financial services sector, which was reflected in the introduction of new legislation and an extensive revision to the existent laws. Following the enactment of amendments to the Central Bank of Malta Act in 1994, the Bank was granted greater autonomy for the formulation and implementation of monetary policy. A Monetary Policy Council was set up and the Bank launched its first open market operations with a view to shifting from a system of direct monetary controls and administered interest rates to a more market-oriented intervention and market-driven interest rates. The Bank was also prohibited from advancing short-term funds to the government in order to strengthen the effectiveness of monetary policy.

To encourage the development of an inter-bank foreign exchange market, the Bank limited its foreign exchange deals with the banks to three currencies. Furthermore, all exchange restrictions on current account payments were gradually removed.

Following the enactment of a new Banking Act and a Financial Institutions Act in 1994, the Bank’s responsibility for banking supervision was confirmed after it was appointed as the Competent Authority responsible for the supervision of credit and financial institutions.

2002 – 2007

Malta’s preparations for membership in the European Union (EU) meant that the Bank had to adapt itself to a new environment in line with the country’s new commitments. In 2002 the Central Bank of Malta Act was amended to grant the Bank full independence in the formulation and implementation of monetary policy. The amendments also ensured the security of tenure of the Governor, Deputy Governor and Board members of the Bank by stipulating five year terms of office. Monetary policy decisions were vested in the Governor, following consultations with the Monetary Policy Advisory Council. The amendments also provided for the setting up of a framework to govern payment systems concurrently with the setting up by the Bank of the first formal payment system in Malta compliant with international standards. In the same year responsibility for the regulation and supervision of the banking and financial sector as well as of the Malta Stock Exchange, was transferred to the MFSA. The Bank remained responsible for ensuring the stability of the Maltese financial system.

On 1 May 2004 Malta joined the EU and the Central Bank of Malta became part of the European System of Central Banks (ESCB). The Governor of the Bank began to sit on the General Council of the European Central Bank (ECB) and experts from the Bank became members of ESCB committees. All capital controls were removed.

In May 2005 Malta joined the Exchange Rate Mechanism (ERM II) whereby the Maltese lira was pegged to the euro with a central parity rate of EUR1=MTL0.429300. At the same time the Bank started with its preparations for the introduction of the euro as Malta’s national currency. In July 2007 Malta’s entry into the euro area as from 1 January 2008 was confirmed and the central parity rate of the euro with the Maltese lira was set as the irrevocably fixed conversion rate.

2008

On 1 January 2008 Malta joined the euro area and the euro substituted the lira as Malta’s national currency. The Central Bank of Malta joined the Eurosystem and was integrated within the decision making bodies of the ECB. The Governor became a member of the Governing Council of the ECB and experts from the Bank started to participate in Eurosystem committees. Various amendments to the Central Bank of Malta Act, which came into force in the beginning of 2008, brought this Act in line with the requirements of the Eurosystem. From its modest beginning the Central Bank of Malta has now evolved into an institution with a status that is equal to that of any other national central bank within the euro area.


The Central Bank of Malta has had the following Governors:-