The Bank of Mauritius is the central bank of the Republic of Mauritius. It was established in September 1967 as the central bank of Mauritius. It was modeled on the Bank of England and was, in effect, set up with the assistance of senior officers of the Bank of England. Amongst its responsibilities is the issuance of the Mauritian currency, the Mauritian rupee.

History
In the 19th Century three separate commercial banks, now all defunct, operated under the Bank of Mauritius name. The first Bank of Mauritius started operations in 1813 or so, but survived only until 1825.

The second Bank of Mauritius was a British overseas bank with two boards of directors, one in London and the other in Port Louis. It began operations in 1832 and favored the interests of the planter class. In 1838 traders established Mauritius Commercial Bank to give themselves an alternative source of credit as until its establishment the Bank of Mauritius had a monopoly on the island. The financial crisis of 1847 in London resulted in the collapse of the sugar market, and severe losses to both of Mauritius's banks. Bank of Mauritius ceased business in 1848, though the Mauritius Commercial Bank has survived to the present.

Local interests established the third Bank of Mauritius in 1894 to take over the local business of the failed New Oriental Bank Corporation. In 1911 the bank opened a branch in the Seychelles. However, in 1916 the Mercantile Bank of India (est. 1893) acquired the bank. HSBC in turn acquired the Mercantile Bank in 1959. Because of this history, HSBC refers to itself as the oldest foreign bank in Mauritius. The next foreign bank to arrive, and to survive to the present, was National Bank of South Africa, an ancestor of Barclay's Bank Mauritius.

In addition to the above three banks, a bank by the name of the Colonial Bank of Mauritius, Bourbon, and Dependencies, operated between 1812 and 1813.

Objectives of the Bank
The Bank of Mauritius Act 1966 (as amended) lays down the purposes of the Bank which are to "safeguard the internal and external value of the currency of Mauritius and its internal convertibility" and to "direct its policy towards achieving monetary conditions conducive to strengthening the economic activity and prosperity of Mauritius".

The Bank has been set up as the authority which is responsible for the formulation and execution of monetary policy consistent with stable price conditions. It also has responsibility for safeguarding the stability and strengthening of the financial system of Mauritius.

Functions
The text-book description of central banking functions holds valid in a general way for all countries. The main functions of the Bank include:

• Formulation and implementation of monetary policy;
• Issuer of currency;
• Banker to the Government and to banks;
• Provider of an efficient payment, settlement and clearing system;
• Management of the public debt;
• Management of foreign exchange reserves;
• Regulator and supervisor of banks;
• Adviser to the Government on financial matters.

The effectiveness of the role and functions of Central Banks in achieving the desired results depends greatly on the extent to which monetary policy and fiscal policy are co-ordinates.

In a free enterprise economy with a liberalized financial system, central bank supervision of commercial banking institutions is indispensable. Commercial banks in Mauritius are regulated and supervised by the Bank of Mauritius under the Banking Act 1988 which replaced the 1971 Act in January 1989 with a view to strengthening and modernizing the regulatory and supervisory system as well as to providing for the legal framework for the establishment and operations of offshore banks domiciled in Mauritius.

The basic objectives of the Banking Act are to maintain a sound banking system in Mauritius and to protect the interests of depositors. It incorporates the following principles of prudential regulation and supervision of banks:

1. Licensing of Banks
2. Capital Adequacy
3. Quality of Management
4. Liquidity Control
5. Concentration of Risk
6. Role of External Auditors
7. On-site Examinations
8. Off-site Surveillance
9. Control of Advertisements
10. Confidentiality of Information
11. Identity of Customers

The Bank of Mauritius is thus required to ensure:

• the promotion of adequate and reasonable services to the public;
• a high standard of conduct and management throughout the banking and credit system;
• a sound financial structure;
• the furtherance of such policies as may be in the national interest.

Commercial banks, like any other private enterprise, are profit maxi misers. In the pursuit of profit-making, they may become less cautious and take greater risk in their lending operations. This may endanger the safety of depositors money. From the supervisory angle, one of the most important concerns of the Bank of Mauritius is therefore to ensure the maintenance of a sound commercial banking system.

Since the establishment of the Bank of Mauritius, the Mauritian economy and the financial landscape of Mauritius have undergone considerable changes. Exchange control was completely abolished in July 1994. The exchange rate of the Rupee is determined by market forces. Interest rates are freely determined on the market. Direct credit control which served its purpose in the old days is no longer an instrument of monetary control.

In short, the Bank of Mauritius has moved away from a system of direct monetary control to an indirect method of monetary control. The functions of monetary management and the regulatory as well as the supervisory role of the Bank of Mauritius are intertwined, more so as the country has been increasingly integrated with the world economy.

Against this backdrop of changes within the Mauritian financial system as well as those in the world financial system, the conduct of monetary policy and the regulatory and supervisory role of the Bank of Mauritius have become increasingly complex. The Bank of Mauritius is strongly committed to enhancing competition and efficiency in the financial system and ensuring its total integrity.

Useful links

Currency of Mauritius:

Mauritian rupee

List of Central Banks:

Central Banks

Official website of Bank of Mauritius:

www.bom.mu

Minister of Finance of Mauritius and Economic Development:

www.gov.mu

Monetary Policy:

www.bom.mu

Legislation/Bank of Mauritius Act 2004:

www.bom.mu