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Tue dole of National Bank of Rwanda from 1995 to 2010

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par Paterne RUKUNDO
National university of Rwanda - A0 2011
  

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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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