The Governance of Egypt’s Central Bank Under Its New Law

By | December 7, 2020

On September 24th, the Egyptian President ratified Law No. 194 of 2020 on the Central Bank and the Banking Sector, which completely replaced Law No. 88 of 2003. The new law is an outgrowth of the negotiations between the Egyptian Government and the IMF on Egypt’s request for a $2.7 billion grant through the Rapid Financing Instrument (RFI). The new 116-page law contains 241 articles governing the national financial regulator and its interactions with the banking sector. In this post, we highlight some of the more controversial issues raised by the new law.

Transparency Concerns

Disregarding the IMF’s best practices for central bank governance, Egypt’s new law includes a number of articles that clearly raise credibility concerns and may represent a considerable impediment to the autonomy of the central bank. Using the same language from Article (5) of the repealed law, Article (6) of the new law stipulates that: “The Central Bank aims at protecting the integrity of the banking and monetary system and stabilizing prices, within the framework of the state’s public economic policy.” This article is a textbook example of what should not be in the statutory language describing central bank objectives. Multiple unranked objectives of the central bank fettered by a wider political objective is the kind of practice that significantly impacts the efficiency, accountability, and autonomy of the central bank.

Ranked objectives efficiently guide central banks in concentrating their actions and prioritizing interventions in cases when trade-offs are inevitable. Additionally, a clear ranking of objectives allows for public and political institutions to hold the central bank accountable. Inconclusive wording around the Central Bank of Egypt’s objectives in the new law is compounded by a political statement that will likely compromise the autonomy of the central bank. “[T]he state’s public economic policy” is, in fact, not fully formulated by the central bank. Thus, the central bank may be subject to the economic agenda of the political authorities.

Having been criticised for influencing the decision-making process, a vague relationship between the central bank and the government was adopted by the Egyptian Legislature in the new law. Four councils are established that overlap with the central bank’s competences. Article (48) establishes The Coordinating Council of the Central Bank’s Monetary Policy and the Government’s Financial Policy. Headed by the Prime Minister, with membership from the Minister of Finance, Article (49) provides for the establishment of The Financial Stability Committee, aimed at maintaining the state’s financial stability. Moreover, Article (50) governs the National Council of Payments to be Chaired by the Egyptian President with the membership of the Prime Minister, with the goal of reducing the use of banknotes, offering incentives for e-payments, and promoting financial inclusion. This last Council was already established by the Presidential Decree No. (89) of 2017. Thus, its current legal mandate has become an act of the legislature rather than an executive decree, strengthening its role in monetary policy. The fourth new council is the Interrelations Committee provided for by Article (51), to be headed by the Prime Minister and entitled to settle the financial transactions between the Ministry of Finance and the central bank. It is worth mentioning that the Councils established by Articles (48), (50), and (51) have no clear requirements for the number of members. However, it has become clear that Executive representation in the four councils will dominate, thereby compromising the stated independent policy-making process of the central bank.

Appointment and Removal Powers

While Article (10) of the repealed law fully entrusted the Executive with the appointment power of the central bank governor through a presidential decree upon the nomination of the Prime Minister, Article (17) of the new law has finally adopted the “double-veto” arrangement by a Presidential Decree upon the consent of the absolute majority of the House of Representatives (“the Legislature”). This policy is in line with the international good practice of mandating two different institutions with the appointment power of the governor so as to enhance his/her autonomy. Moreover,  such a step legally textualizes the constitutional rule created by the 2014 Egyptian Constitution. Article (215) of the Constitution stipulates that: “Independent Authorities and Oversight Agencies shall be specified by Law… These bodies and agencies include the Central Bank, … .” Additionally, Article (216) provides that: “… The President shall appoint the heads of such organizations and regulatory agencies, upon the consent of the House of Representatives by a majority of its members, for a once-renewable four-year term. They shall not be dismissed, except in the cases stated in the law… .”

The new law unfortunately overlooks good practice on two significant issues: the appointment power of the board members and the removal power of the governor and board members. The Legislature has inexplicably differentiated between the governor and other board members in the appointment process; the President, under Articles (18) and (20), is entrusted with the power to appoint the two deputy governors upon only a “recommendation” of the governor and upon a “nomination” of the governor and “consultation” with the Prime Minister. Furthermore, the dismissal process of the governor, deputies, and board members seriously contradicts the should-be guarantees for central bank officials.  According to Article (24), the President may, upon a “recommendation” of the board, dismiss the governor or any other board member in four cases, one of which is “if he/she loses capacity to function for health grounds.” It is clearly evident that such an article is based on a flexible, subjective, wording that practically grants the President at-will removal power, bearing in mind that the law has not specified the legal process of dismissal for medical reasons. Additionally, the dismissal process clearly lacks the “double-veto” procedures by completely disregarding the role of “The Legislature”, eviscerating the personal autonomy of the governor.

The Unchecked Powers of The Governor

According to one critical IMF working paper on governance of central banks, the concentration of powers in the governor without sufficient checks and balances of the board reflects an imperial management usually associated with corruption and malpractice. Given that, the articles of the new law undoubtedly create an imperial governor. One of the most serious powers granted to the governor is that he is entitled, under Articles (71), (207), and (214), to unilaterally impose sanctions over Currency Exchange Offices, Representative Offices of Foreign Banks, and Commercial Banks licensed for foreign currency transactions in cases of non-compliance with the bank regulations. Such sanctions vary from temporarily suspending or permanently revoking licenses. Moreover, the governor is solely granted, by Article (120), the approval power over the appointment of High Rank Officials of the Commercial Banks monitored by the central bank. Additionally, the governor has been vested with a wide range of powers in the law enforcement process. Under Article (238), only the governor has the power of referring financial criminal cases to the public prosecutor; that is, the public prosecutor shall neither investigate nor prosecute any crime without the governor’s written referral. Also, the governor, not the board, has the approval power over reconciliation settlements for crimes prosecuted upon such a law, according to Article (240).

The central bank’s efficiency under its new governing law is diminished by multiple unranked objectives and accountability concerns. Also, the autonomy of the central bank is clearly undermined by the numerous overlapping supra-entities and the upper hand of the Executive over the appointment and dismissal of its officials. Finally, the internal imbalance of power between the governor and the central bank’s board allows for an imperial governor politically subordinated to the executive.



Mr. Mohamed Leila is An Assistant Lecturer of Commercial Law at Faculty of Law, Mansoura University, Egypt. He is also an LL.M Student in International & Comparative Law Program at the American University in Cairo.

Mr. Eslam Saleh is a Ph.D in Law Candidate at Faculty of Law, Mansoura University, researching the independence and accountability of regulatory agencies. He is also a Masters of Public Policy Student at the American University in Cairo. He was formerly an Assistant Lecturer of Public Law at Mansoura University and a Public Prosecutor. He tweets at @EslamMSaleh



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