Over the past decades, international trade has largely grown in volume and significance across all countries (World Trade Organization, 2013). However, as trade continues to rise in volume and significance, more trade related challenges and complications also began to rise (UNCTAD, 2015). Some of the prominent trade barriers included technical challenges that emerge at border posts due to bureaucratic procedures and a lack of harmonization on the classification of commodities which all cause delays in clearing goods at border posts.
As an attempt to minimize these trade barriers and maximize trade benefits, several international organizations were established such as the World Trade Organization, as well as regional trade blocs such as the Southern African Development Community (Mooketsi & Mogotsi, 2019).
A key example of such efforts to reduce trade barriers was the adoption of the Trade Facilitation Agreement (TFA) by member states of the World Trade Organization (WTO). After two-thirds of the WTO members formally accepted this agreement, the TFA entered into force on 22 February 2017 with a view of enhancing trade facilitation and expediting the movement, release, and clearance of goods (World Trade Organization, 2021).
Upon ratification of the Agreement, each member of the WTO has to ensure the provisions of the Agreement are applied and put to practice. Botswana, being a member of the WTO, was the eighth member to ratify the WTO TFA on 18 June 2015 (World Trade Organization, 2018). Having ratified the WTO TFA, this article outlines how the Bank of Botswana (the Bank) as a key institution in Botswana, is crucial for the implementation of trade facilitation reforms and how the Bank contributes to trade facilitation reforms in helping Botswana adopt and implement the provisions of the WTO TFA.
SPECIFIC FUNCTIONS OF THE BANK OF BOTSWANA IN RELATION TO TRADE FACILITATION
The Bank of Botswana (the Bank), which is the central bank of the Republic of Botswana, was established in 1975 and has a regulatory role over the financial system of the country. It is further responsible for the implementation of monetary policy and exchange rate policy. Its primary objective is to promote and maintain monetary stability, an efficient payments mechanism, and the liquidity, solvency, and proper functioning of a soundly based monetary, credit and financial system (Bank of Botswana, 2019). In a nutshell, the Bank endeavors to foster monetary, credit, and financial conditions that are conducive for the sustainable economic development of the country (Bank of Botswana, 2019).
Over and above ensuring a stable and sound payments system, it is worth noting that the Bank has another key role of issuing bank notes and coins (currency), which ensures economic units and international traders have the means to carry out and settle economic transactions, which contributes to ensuring the country can participate in international trade.
Two main reasons make the Bank of Botswana crucial for the implementation of trade facilitation reforms: the implementation of the exchange rate policy; and its regulatory role.
Implementing the monetary and exchange rate policy
The exchange rate policy is of particular importance in trade related matters as trade usually involves the payment of goods in foreign currencies. As such, by implementing the exchange rate policy, the Bank is crucial in trade facilitation as it ensures the exchange of foreign currency between trading partners is always reliable. It is further worth noting that if there are any trade facilitation reforms that need to be implemented and involve the exchange rate structure, Bank of Botswana would be the gateway to implementing these as it is mandated to implement the exchange rate policy. This is therefore one way in which Bank of Botswana is crucial for the implementation of trade facilitation reforms.
A regulatory body over commercial banks
Within the Buy-Ship-Pay reference model developed by the United Nations Centre for Trade Facilitation and Electronic Payments (UN / CEFACT), commercial banks are identified as one of the key intermediaries within the trade cycle. Their key role is to help traders pay suppliers for goods and services rendered, as well as to pay customs bodies for tariffs and other related payments. Without these banks as intermediaries, the settlement process between traders and other involved parties would collapse and potentially hinder trade.
Therefore, to ensure there is a stable and reliable intermediation of banks, Bank of Botswana has the responsibility of licensing, supervising, and regulating commercial banks. This ensures they operate within the stipulated rules and regulations that protect them from end consumers from exploitation, and help prevent the commercial banks from collapsing, through for example, setting reserve ratio requirements. All in all, such regulations aim to ensure commercial banks operate effectively which ensures a stable intermediation of banks within the Buy-Ship-Pay model.
Furthermore, as commercial banks develop new payments and settlement processes and products thanks to Fintech advancements, the Bank is mandated to oversee that these are safe, efficient, and reliable before they are implemented, which ensures end-users such as traders are not exploited but rather are able to complete secure payment transactions through such means.