Why we work with central banks
Central banks have always played an important role for macroeconomic stability. In the aftermath of the global financial crisis, however, their role has evolved; now playing an even more important role for policy making. Their decisions influence almost everyone in a society, shape individual preferences and corporate investment decisions, and in aggregate play a significant role in determining the overall well-being of an economy.
Many central banks pursue the ultimate goals of strong sustainable economic growth and full employment by preserving price stability and promoting financial stability:
  • Price stability. The experiences of high inflation in advanced and developing economies alike during the 1970s and 1980s led academic and policy research to focus on the benefits of providing a low and stable inflation for societies. These efforts culminated in many major central banks adopting price stability as their primary goal.
  • Financial stability.  Equally influential has been the experience of recent global financial crises. This has led many central banks to re-calibrate their regulatory architecture and account for financial stability considerations in their decision making process. This process remains far from complete.     
However, central banks differ significantly in what is legally mandated of them, their operational independence, what policy instruments are available to them, their legacy, and the political economy environment in which they function. Hence, identifying a universally applicable code of "best practices" is difficult.

BCC supports partner central banks across six areas

1. Monetary policy and implementation 

Monetary policy influences the economy after a time lag. It is therefore important for central banks to be able to forecast the likely future path of the economy with and without certain policies. This requires models and tools that can describe how major sectors and variables in the economy are related to each other, and how they react to external shocks and policy interventions. Our emphasis is to improve the analytical tools available to the central bank and promote best practises associated with implementation.
EXAMPLE
BCC assisted the monetary policy department of a partner central bank to improve the quality of its economic analysis. We supported the bank on two fronts.
  1. First, we assisted the bank in designing and implementing a framework to evaluate their forecasting accuracy. The new methodologies have shown to produce better forecasts than previous techniques.
  2. Second, our experts worked with the bank to recalibrate the generic formulas used by international financial institutions in calculating ‘optimal international reserves’ to reflect specificities of the country.  

2. Macroeconomic accounting and statistics

Central banks use a wide range of data on economic and financial activity to perform their tasks including monetary policy formulation, financial stability, and oversight of payment systems. Hence, it is critical to ensure the quality and consistency of the domestic and international data they rely on. Responding to the broad needs of our partner central banks, and in particular to those operating in data-poor environments, BCC assists central banks in improving their data quality to match international standards. 
EXAMPLE
BCC assisted the statistics department of a partner central bank to develop guidelines that ensure that the data they collect and compile is comparable across time and countries. This led to improvements in the quality of datasets and the ease of use by researchers. Specifically, the engagement has also resulted in the publication of new data series that meet international standards.

3. Financial stability

Stability in financial markets is part of a wider goal of achieving macroeconomic stability. There is a close interlink between monetary and financial stability, and the objective of financial stability is becoming increasingly important for central banks in the aftermath of the financial crisis.* We provide technical assistance on how to identify current and emerging financial risks, build country-specific early warning indicators, and operationalize stress-tests that are specific to country contexts.
EXAMPLE
Our experts have been assisting a partner central bank develop the tools it needs to have a good oversight over the financial sector. We have supported the department in its efforts to build early warning indicators, a heat-map for the economy, as well as a policy framework to undertake a systemic stress test. Through this support we will help the department develop the first ever Financial Stability Report, which will become an annual publication.
 * For a detailed discussion of the issues involved in defining financial stability, see Defining Financial Stability. 

4. Financial sector development

The structure of financial markets has a direct impact on the effects and effectiveness of monetary policy. The transmission of monetary policy relies on how the banking system, the payment system, the foreign exchange market, and bond and equity markets react to policy changes, and the central bank therefore is directly concerned with their development. BCC supports its partner central banks in the development of their country's financial sector.
EXAMPLE
BCC experts worked with the banking department of a partner central bank to train the staff analyse the payment systems data , identify and report on risks and vulnerabilities in the systems, apply skills for systems surveillance, and assess new payment products. These efforts, implanted though a series of technical assistance missions, led to the first report on payment systems for the central bank.

5. Operational Risk Management

Operational - or nonfinancial - risk management is an essential element of good governance of central banks. Operational risks are linked to failures in internal processes, infrastructure, information systems, staff, legal, communications or external events.
BCC works with partner central banks in improving their preparedness to face critical operational risks such as an earthquake, an outbreak of infectious epidemics, or a cyber-breach.
EXAMPLE
BCC experts worked with the senior management of a partner central bank to revise the central bank’s crisis management plan. In addition, they came up with a strategy to allocate resources in the event that operational risks materialised.  As a result of the project, the central bank approved a new set of procedures, created a new operational team and technological capabilities at a back-up site outside head quarters; and was able to launch simulations to test the preparedness of the bank and of other stakeholders such as regulatory agencies, commercial banks, and financial market authorities. The ability of a central bank to continue providing cash to commercial banks and maintain the payment system is essential for a country to keep functioning, especially during a crisis

6. Human Resource Management

Ultimately, the strength of a central bank depends on the quality of its staff. Therefore, managing human resources effectively is a critical element in maintaining an effective and credible central bank. ​As large complex organisations, central banks often face multiple challenges related to recruitment, training, retention, and talent management. Underscoring the need to build a sustainable pool of talent in our partner central banks, BCC offers tailored advice on best practices in the area.
EXAMPLE
Working closely with the human resources department of a partner central bank, BCC experts crafted a new appraisal system tailored to needs of the bank and drawing on the experiences from other central banks.  The engagement led to the adoption of an appraisal form, and a set of competencies have been enshrined in the new by-law. In tandem, our experts trained more than 50 managers in the new appraisal system, its relationship to wider performance management, and in conducting performance reviews.
BCC uses think-cell software which has been offered to BCC employees by www.think-cell.com as a way to support our nonprofit work.