The National Bank of Moldova (Romanian: Banca Naţională a Moldovei) is the central bank of the Republic of Moldova.

The National Bank of Moldova is a legal, public, autonomous person responsible to the Parliament. The main objective of the NBM is the achievement and maintenance of the stability of the national currency. The National Bank cooperates with the Government with the view to achieving its objectives and, according to the Law, undertakes the necessary measures to implement such cooperation. The NBM periodically informs the public about macroeconomic analysis, financial market evolution and statistic data, including on money supply, credit granting, balance of payments and foreign exchange market.

The National Bank of Moldova is the central bank of the Republic of Moldova and exercises its attributions as a legal, public, autonomous person responsible to the Parliament. The fundamental objective of the National Bank is the maintenance and the ensuring of prices stability.

The National Bank cooperates with the Government with a view to achieving its objectives and, pursuant to the law, undertakes the necessary measures to implement such collaboration. The National Bank periodically informs the public on the macroeconomic analysis results, the financial market dynamics and statistical information, including on money supply, the balance of payments and the situation within the foreign exchange market.

The National Bank is not subject to registration in the State Register of enterprises, or in the State Register of organizations. The National Bank is independent in exercising its attributions established by the Law on the National Bank of Moldova and neither requires, nor receives, according to the same law, instructions from public authorities or from any other authority.

In order to achieve its attributions, the National Bank has the right to issue decisions, regulations, instructions and orders. The normative acts of the National Bank, which are compulsory for financial institutions and other legal and physical persons are published in the Official Monitor of the Republic of Moldova and come into force either on the date of their publication, or on another date stipulated in the text of the respective normative act, provided that the public is informed accordingly.

History
National Bank of Moldova (NBM) was established under Presidential Decree of the Republic of Moldova on June 4, 1991 with the appointment of Leonid Talmaci as the Governor of the NBM.

The primary objective of the National Bank of Moldova is to achieve and maintain price stability.

The National Bank of Moldova plays an important role in the process of transition of the Republic of Moldova to market economy. Since 1991, it has worked out and implemented a range of efficient measures directed towards the stability of the monetary and credit environment. The most important step was the introduction of the national currency - Moldovan Leu on November 29, 1993 and the further promotion of an anti-inflationary monetary and credit policy. Thus, the galloping inflation was stopped from the beginning of ‘90s.

In 1995 the Parliament of the Republic of Moldova approved the Law on the National Bank of Moldova and the Law on Financial Institutions. In accordance with the first Law, the National Bank of Moldova is independent in exercising its attributions and is responsible to the Parliament. The second Law has as target the formation of a strong and competitive financial sector, the prevention of an excessive risk and the protection of depositors' interests.

Starting with 1998, the National Bank of Moldova abandoned the practice of establishing the official exchange rate of the national currency against the U.S. dollar at the Foreign Currency Exchange and proceeded to calculate it based on the simple average of the weighted average exchange rates of the U.S. dollar purchases and sales against Moldovan Lei on the inter- and intra-bank markets. That fact allowed decentralizing the local foreign exchange market in accordance with the practices of developed countries.

Following the elimination of the excessive risks within banks and the creation of the necessary conditions for their financial stability maintenance, in July 2004, a deposit guarantee system has been established, by launching the Deposit Guarantee Fund in the banking system. The legal status of this Fund ensures its judicial, operational, financial and administrative independence. All banks licensed by the National Bank of Moldova must take part in the deposit guarantee system. The funds designed to guarantee bank deposits are accumulated from banks’ contributions.

Within the context of alignment with the international standards, the National Bank of Moldova implemented in 2006 a new automated interbank payment system (AIPS). It is composed of Real-time Gross Settlement System, aimed at processing a large-value and urgent payments and the Designated-time Net Settlement System, designed for processing a low-value payments. Thus, a modern infrastructure of payments was enforced, which created important prerequisites for the provision of payments of a new quality and for facilitating non-cash payments throughout the country.

Since November 6, 2009 the National Bank of Moldova has been governed by Dorin Drăguţanu, appointed by the Decision of the Parliament of the Republic of Moldova no. 56-XIII.

At the end of 2009, the Council of Administration of the NBM adopted the Monetary Policy Strategy of the National Bank of Moldova for 2010-2012. According to it, NBM has initiated in 2010 the implementation of a new monetary policy regime - inflation targeting. Considering the instruments available to the monetary authorities, in the context of Moldova's economic realities and the experience of other central banks, the inflation targeting enables to achieve more efficiently the fundamental objective of the NBM - ensuring and maintaining price stability - stipulated by the Law on the National Bank of Moldova.

To improve the transmission mechanism of monetary policy actions, NBM decided to implement the inflation targeting regime. The system is based not only on historical and current developments in macroeconomic indicators but also their medium-term projections under various uncertainties and risks related to a small open economy. The fact in question allowed the available instruments to be used in time and with maximum effect.

The new monetary policy regime provides for the establishment of a quantitative target for inflation in the medium term with an acceptable range of variation and taking the necessary measures by the monetary authority to achieve this target under inflationary pressures arising from various internal and external economic shocks.

The legal framework governing banks has been substantially improved in 2010. Amendments and additions to the Law on financial institutions no. 550 of 21.07.1995 and Law on guaranteeing deposits of individuals in the banking system no. 575 of 26.12.2003 have been approved. These amendments are mainly intended to strengthen the problem solving opportunities for distressed banks, by establishing a new supervisory instrument for banks - special administration. This is a temporary regime which consists in working out of administrative, financial, legal and organizational measures, by a person designated by the National Bank of Moldova, intended to determine optimal conditions for preservation of assets, elimination of deficiencies in the management of the bank and its patrimony, debt collection, to establish the possibilities to remedy the financial situation, including restructuring or liquidation of the bank. In addition, the aforementioned amendments create legal conditions for increasing the efficiency of liquidation of insolvent banks and honoring claims by depositors. For this purpose, it is provided for the reduction of terms for establishing the insolvent bank’s debt to individuals related to their deposits and for the beginning of the payment by the Deposit Guarantee Fund in the banking system of compensation for unavailable guaranteed deposits.

In order to minimize the risks related to the financial system, as a result of the impact of the global financial crisis of 2008 and with the purpose of achieving prompt action in case of unexpected financial shocks, the Government of the Republic of Moldova approved the establishment of a National Committee for Financial Stability on June 2, 2010. It consists of representatives with decision-making power of public authorities involved in crisis management, including the Governor of the National Bank of Moldova. The duties of the committee are focused on financial crises management, development of proposals on policies and measures to protect deposits, capitalization and recapitalization of banks, restoring confidence in banking system security, etc. The obligations and responsibilities of authorities involved in crisis management are provided for in the Memorandum of Understanding on Maintenance of Financial Stability, signed by the members of the National Committee for Financial Stability on February 28, 2011.

Functions
The basic functions of the Bank are:

• to formulate and to promote the state monetary and foreign exchange policy;
• to act as banker and fiscal agent of the state;
• to license, supervise and regulate the activity of financial institutions;
• to supervise the payment system of the Republic of Moldova and to facilitate the efficient functioning of the inter bank payment system;
• to issue the domestic currency;
• to establish, through consultations with the Government, the foreign exchange regime of the national currency;
• to manage foreign exchange reserves of the state;
• to settle the balance of payments of the country;
• to carry out the foreign exchange regulation on the territory of the Republic of Moldova, etc.

Organisation

Council of administration of the National Bank of Moldova
The National Bank of Moldova is governed according to Law no. 548-XIII from 21.07.1995 by a Council of Administration made up of five members

The NBM Governance
In parallel with decision-making bodies of the NBM, Corporate Governance of the National Bank includes several levels of external and internal control.

External:

• External Audit
• Safeguards Assessment of the NBM by the IMF
• Audit of the Court of Accounts of the R.M.

Internal:

• Internal Audit
• Internal control - permanent operational control, subdivision level
• Code of Conduct of the NBM Employee
• Anti-Fraud policy of the NBM
• Action plan of the NBM for preventing and combating fraud and corruption
• Organizational chart of the National Bank of Moldova

The National Bank of Moldova is governed according to Law no. 548-XIII from 21.07.1995 by a Council of Administration made up of five members

Banking system
In 1991, in accordance with the legislation, a two-level banking system was formed. Within this system the National Bank of Moldova acts as central bank, but it is not involved in commercial banking. In June and July 1995 the Parliament adopted two Laws on the National Bank of Moldova and on Financial Institutions.

These laws provide stipulations meant to strengthen the NBM role in working out and implementing the monetary and foreign exchange policies and to ensure a stable and sustainable financial system.

The National Bank is responsible for the authorization, the supervision and the regulation of financial institutions’ activity. These attributions are exercised taking into account the Core Principles of Basel Committee for an efficient banking supervision. The licenses, including for transactions with significant interests held within the banks’ capital, are issued only in case the National Bank is fully convinced that the authorized persons will display a stable financial situation and will activate in compliance with the legal prudential requirements, including the requirements related to the qualification, the experience and the reputation of their administrators and owners. The prudential regulation determines the maximum indices and the positions to be observed by banks with reference to their assets, risk-weighted assets, off-balance articles and various capital and reserves categories. Banks are obliged to harmonize the terms and the interests on assets and liabilities, not to surpass the unsecured positions in foreign currency, to maintain liquid resources within the required limits referred to the value of assets or of liabilities.

The internal control systems of the banks are targeted towards the protection of the interests of depositors, shareholders and customers by ensuring the observance of the enforced laws, the regulation of the conflicts of interest, the thorough use of incomes for profits increase, conducting authorized expenditures according to their destination, adequate protection of assets, correct entering of liabilities and mitigation of risks.

The observance by banks of prudential requirements and the evaluation of risks related to their activity is monitored both within on-site and off-site controls. The National Bank of Moldova is vested with substantial rights through the enforced legislation to intervene in the banks’ activity for remedial purposes.

Monetary policy
The National Bank of Moldova establishes and implements the monetary and foreign exchange policies.

Following the approval of Law no. 191-XVI of 30.06.2006 on the modification of Law no. 548-XIII of 21.07.1995 on the National Bank of Moldova, the fundamental objective is the maintenance and the ensuring of prices stability.

At the same time, without prejudice to its fundamental objective, the National Bank promotes and maintains a financial system based on market principles and supports the general economy policy of the Government.

In order to achieve its fundamental objective, the National Bank of Moldova uses a wide range of available indirect instruments of monetary and foreign exchange policy, including: SS selling-buying operations and reverse REPO agreements; Lombard facilities, required reserves; NBM base rates, issuance of the National Bank Certificates, deposits acceptance from banks and others.

Foreign exchange policy
The National Bank of Moldova maintains a floating exchange rate regime and sets out the official exchange rate of Moldovan leu as against US$ based on exchange rates leading in the domestic foreign exchange market.

In this context, the National Bank of Moldova shall be entitled to conduct foreign exchange interventions with a view to recessing the excess fluctuations of the official exchange rate and to building up the international foreign exchange reserves. Direct interventions in the domestic foreign exchange market, including forward transactions, as well as swap reversible foreign exchange operations are used as foreign exchange policy instruments.

Within the framework of foreign exchange policy implementation the National Bank of Moldova endeavors to maintain the international reserves at an acceptable level for covering three months or so of imports and promotes a prudent foreign exchange policy, consistent with the fundamental objective of ensuring and maintaining the price stability along with the placement of the state's international reserves into investment instruments complying with the security and liquidity criteria.

Balance of payments
Starting with 1992 the Republic of Moldova has become a member of the International Monetary Fund (IMF), assuming the obligation to systematically submit to IMF the information on the national economy dynamics, among which external sector-related statistical documents.

Based on the Law on the National Bank of Moldova, the NBM Balance of Payments Division works out the Balance of Payments, which is a macroeconomic account reflecting systematically the resident-nonresident transactions for a certain period of time. The statistical document International Investment Position – an instrument of financial assets and liabilities evaluation versus foreign partners at period-end is worked out in relation with the Balance of Payments. The Balance of Payments Division of the National Bank is also responsible for the working out of the external Debt statistics of the country.

The methodology of compiling the Balance of Payments of Moldova is based on methodological norms set out in the 5th edition of the IMF Manual and is under on-going development according to the economic dynamics. The main methodology principle – double-entry – ensures the registration of the information on international transactions on those two balance accounts, current account and capital and financial account, enabling the analysis of economic events through both the real and financial sectors statistics.

The Balance of Payments and the International Investment Position are statistical documents that reflect the evolution of the external sector of the national economy. They are worked out quarterly and yearly. The Balance of Payments is worked out as a general lay-out, by partner regions and countries (Ukraine, Romania, Russia, Germany, Belarus).

Useful links

Currency of Republic of Moldova:

Moldovan leu

List of Central Banks:

Central Banks

Official website of National Bank of Moldova:

www.bnm.md

Ministry of Finance of Republic of Moldova:

www.mf.gov.md

Government of Republic of Moldova:

www.gov.md