Bank of Botswana is established

September, 1975

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 tThe 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.