[This account, especially of the early years of the Bank, draws heavily from 'Bank of Botswana: the First 21 Years' by H. C. L. Hermans. This is included in 'Aspects of the Botswana Economy, Selected Papers', published by Lentswe La Lesed in Botswana and James Currey in the United Kingdom. Copies of this book may be obtained through the Bank of Botswana library.]
The establishment of the Bank of Botswana followed a decision to withdraw from the Rand Monetary Area (RMA) under which the South African rand had been the legal currency in Botswana since independence in 1966. Anticipating that negotiations for a new RMA agreement that was more favourable to the smaller members (Botswana, Lesotho, and Swaziland) would be problematic, in 1973 Sir Seretse Khama, the President of Botswana, appointed a Monetary Preparatory Commission. The commission was chaired by Mr H.C.L. Hermans, then the Permanent Secretary, Ministry of Finance and Development Planning. The decision to withdraw from the RMA was announced by President Khama in September 1974.
This was despite advice against such a move, including from the International Monetary Fund (IMF), which stressed the vulnerabilities faced by a small, open economy that could not easily afford to maintain reserves sufficient to counter economic and financial volatilities. Nonetheless, the authorities believed that such costs were outweighed by the expected benefits to national development of expanding the range of domestic financial institutions and instruments. Ultimately, the decision to withdraw from the RMA was due not so much to the difficulties in the negotiations (which were successfully concluded between the other members in December 1974) but to the opportunity it provided to pursue independent economic strategies that were already constrained both by the heavy dependency on aid and membership of the Southern African Customs Union (SACU).
In April 1975, the Bank of Botswana and Financial Institutions bills were passed to legislate, respectively, for the establishment of a central bank and the framework to govern financial institutions that would fall under its supervision. The Bank of Botswana was formally established in July 1975, with Mr Hermans as the first Governor.
The first two years were a period of intensive institution building. As well as recruiting staff and securing premises, having decided to leave the RMA it was essential for the Botswana authorities to address and resolve a number of policy issues related to the introduction of a national currency and the establishment of a central bank, including the existing commercial banks that were now locally incorporated. The four most immediate of these issues concerned the characteristics of the new national currency, the exchange rate regime, domestic interest rates and the development and supervision of domestic financial institutions.
The Bank launched the national currency, the Pula, on August 23, 1976 (Pula day), to replace the rand. The rand exchanged for the Pula was credited to Botswana by the South African Reserve Bank, forming the basis of the country's foreign exchange reserves.
History of the Pula
Subsequently, Botswana's foreign exchange reserves started to increase significantly in the 1980s, reflecting the consistently large surpluses on the balance of payments and government budget. As a result, it also became necessary for the Bank to develop a robust strategy for the management of these national assets, the return on which had become a major revenue source for Government. The Pula Fund was established in 1994 as a long-term investment vehicle for the reserves, an early example of a Sovereign Wealth Fund (SWF).
In July 2000, the Bank of Botswana proudly celebrated its 25th (silver) anniversary. This occasion was graced by several invited dignitaries, and included a seminar presentation by Jeffrey Sachs, the noted economist. In the years since its establishment the Bank had, by then, been transformed fundamentally. In turn, this reflected the successful transformation of Botswana from one of the world's poorest countries at the time of independence to a modern, middle-income economy, including an increasingly sophisticated financial system that is market-oriented and free from unnecessary controls (all remaining forms of foreign exchange control were abolished in February 1999). As well as reserve management, the Bank was undertaking sophisticated operations in the core areas of monetary policy, banking supervision, payments systems and currency management with the support of a motivated and well-trained workforce. To accommodate growing staff numbers, the Bank's premises have also expanded several times including, in 1995, the opening of a branch in Francistown to serve northern Botswana.
This development has continued in the years since the 25th anniversary. The continuing success is indicated by the receipt of several international awards by Mrs L. K. Mohohlo, the Governor from October 1999 to October 2016.
As the Bank’s responsibilities continued to evolve, its organization has been subject to regular review to ensure that it continues to successfully achieve its mandate. In line with this, the most far-reaching re-organization in the history of the Bank was effected in July 2010. This resulted in the establishment of an additional Department and several new divisions, as well as two new senior management level positions of General Manager.