CHAPTER
IV . MODEL ESTIMATION AND FINDINGS
4.1. Introduction
So far we have presented the literature both on theoretical
and empirical side on the causality between economic development and central
bank through financial development. It is now time to turn to the empirical
testing of this relationship for Rwandan economy. This chapter presents the
results obtained from econometric testing and discusses the meaning and reason
behind the figures.
4.2. Historical background
of National Bank of Rwanda (NBR)
It is most impossible to dissociate the study of Rwanda's
monetary history from that of the former Congo and Burundi, since the three
countries had, until 1960, a common currency issued by a common monetary
authority.
At the end of 19th century and early
20th century, transactions in Belgian Congo was as well as in
Rwanda. Burundi was rudimentary. The means of transactions used included salt,
ivory, shells, copper, hoes, and axes. During the earliest days of the
exploitation of railway in Belgian Congo, people used chickens to play their
tickets. As in many African countries it was rather a barter economy.
In October 1912, the bank of Belgian Congo issued its first
convertible bank notes of 20, 10, and 1000 francs. The circulation of these
banknotes was difficult despite its extension to Rwanda-Burundi territories.
(BNR handbook, 1964-89: 13).
Congo became independent on 30th June 1960 and
acquired a political status different from that of Rwanda-Burundi.
Consequently, a review of statutes of the institutions common to Congo and
Rwanda-Burundi was necessary. (BNR handbook, 1964: 14).
The role of decree of 21th August 1960 established
a public institution called «Banque d'emission du Rwanda et du
Burundi» (B.E.R, B.) whose heard office was in Bujumbura with a branch in
Kigali.
Banque d'Emission du Rwanda et du Burundi's mission was to
promote the economic development, the development of human and material
resources as well as currency stability.
Rwanda and Burundi common monetary system did not last for
long. Political economic and psychological factors led to the dissolution of
this union.
Rwanda, which was kept apart from the Leopoldville centre of
influence, noticed once again that the installation of various common
institutions in Bujumbura would harm its economic development. The years of
economic and monetary union were just a failure, each party feeling cheated and
blaming each deficiency on the other party.
The divorce between Rwanda and Burundi became a reality when
the economic union was liquidated from 1st January 1964. (BNR
handbook, 1964: 15).
A liquidation committee was put in place. Its outcomes were
the convention of 18th May 1964 that put on end to the common
monetary rule and to the issuing authority imparted to the B.E.R.B.
The National Bank of Rwanda, established by the law of
24th April 1964, came into force from 19th May 1964 with
the aim of fulfilling one of its main missions, namely the issuing of currency
on Rwandan territory. The B.E.R.B. rights and obligations were ex officio
transmitted to the Royal Bank of Burundi (BRB) and to the National Bank of
Rwanda (BNR).(BNR handbook,1964:15).
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