Main functions

The Maintenance of Price Stability

Monetary policy, which encompasses a number of measures influencing the cost and availability of credit, has evolved as a major tool of economic policy in many countries. A tight monetary stance, characterized generally by high real interest rates, is adopted to rein in monetary expansion and thereby control inflation. On the other hand, a loose monetary policy stance is characterized by low real interest rates and greater availability of credit, thus favoring an expansion in investment and expenditure. It has been increasingly acknowledged that although monetary policy can stimulate output and employment in the short term, it has little effect on output growth in the longer term. The international trend, therefore, has been for central banks to concentrate on ensuring price stability. In accordance with the Treaty on the Functioning of the European Union and the Statute of the European System of Central Banks (ESCB) and of the European Central Bank (ECB), the primary objective of the Central Bank of Malta is to maintain price stability. This has been defined by the Governing Council of the ECB as keeping inflation in the euro area below but close to 2% over the medium term. The Central Bank of Malta contributes to Eurosystem monetary policy decisions through the participation of the Governor in the Governing Council of the ECB. In performing its tasks, the Central Bank of
Malta operates autonomously and independently, in compliance with the applicable provisions of Community and Maltese law. The Bank also seeks to be transparent and publicly accountable. More information on the implementation of monetary policy and the instruments that the Bank uses to carry out monetary policy can be found in the sections on monetary policy in this website.

Reserves Management

The Central Bank of Malta owns and manages the country's official reserves which consist of a portfolio of foreign and domestic financial assets. According to Article 127(2) of the Treaty on the Functioning of the European Union, these reserves, along with those of the other national central banks and the official reserves of the European Central Bank, form part of the reserves held by the Eurosystem. The Banks Investment Policy Committee (IPC) is responsible for setting the Banks investment overall strategy and monitoring the performance of the investment portfolio. Prior to the adoption of the euro, the primary purpose of the reserves was to safeguard the value of the domestic currency and to support the exchange rate peg. Accordingly, the overriding objective of reserve management used to be to ensure appropriate liquidity and to preserve the value of the investment portfolio. Following the Banks membership in the Eurosystem, the main investment

objective of the Bank is to maximize the return on the portfolio within the security and liquidity parameters approved by the Board and the IPC. The Bank also manages a portfolio of foreign reserves on behalf of the European Central Bank in conjunction with another Eurosystem member

Banker to the Banks and the Public Sector

The Central Bank of Malta is banker to the Government and the local commercial banks. It provides the banks with liquidity whenever required through open market operations and collaterilised intra-day lending. The Bank participates in, and operates TARGET2Malta, which forms part of TARGET2 of the Eurosystem. It also supports the clearing of retail inter-bank payments through the operation of the Malta Clearing House for daily settlement through TARGET2. Banks maintain call and term deposit balances with the Bank. If need be they may obtain shortterm loans and advances from the Bank secured by pledging or depositing specified assets with the Bank. In addition to the open market operations mentioned above, the Bank can provide refinancing facilities to the banks by purchasing eligible assets at a discount. As part of the conduct of monetary policy, the Central Bank of Malta requires credit institutions to maintain reserve deposits with the Bank. As from 1 January 2008, the Central Bank of Malta has adopted the ECBs minimum reserve system. The legal framework for this system is laid down in Article 19 of the Statute of the ESCB, Council Regulation (EC) No 2531/98 of 23 November 1998 concerning the application of minimum reserves by the ECB and Regulation (EC) No 1052/2008 of the ECB of 22 October 2008 amending Regulation (EC) No 1745/2003 (ECB/2003/9) on the application of minimum reserves (ECB/2008/10). The reserve requirement of each institution is determined in relation to the reserve base.

Balance sheet data referring to the end of a given calendar month is used to determine the reserve base for the maintenance period starting in the calendar month two months later. The Bank also acts as banker to a number of public sector institutions to which it provides various banking facilities, including deposit accounts and foreign exchange services. Terms & Conditions for Government Deposits held with the Central Bank of Malta All accounts must be maintained in credit. There is no overdraft facility. When funds on an account are insufficient to cover a payment, the payment will not be effected. The Government cannot draw funds against uncleared effects, and interest on euro accounts start to accrue when the uncleared effects have been settled. There is no charge for transactions over the accounts. A copy of current authorized signatures should be provided and updated whenever any changes occur. Back valuations are not permitted. The accounts are interest bearing. The rate on accounts is based on the Minimum Bid Rate of the European Central Bank. On deposits expressed in foreign currency, the rate is based on the weekly average interest rate on the Banks Nostro Accounts less a small margin. Central Bank of Malta cutoff time for payment

orders is 14.30. Data Protection Payments Notice for Electronic

Personal data in relation to transactions effected via SWIFT (Society for Worldwide Interbank Financial Telecommunication) may be required to be disclosed to the United States authorities in order to comply with legal requirements applicable in the United States for the prevention of crime. Ensuring Financial Stability Financial stability is a core function of central banks. A sound and stable financial system is conducive to the efficient conduct of monetary policy. In terms of article 5 of the Central Bank of Malta Act, the Central Bank of Malta is responsible to ensure the stability of the financial system. In fulfilling this statutory obligation, the Central Bank of Malta plays a key role in maintaining the stability of the domestic financial system, whilst further contributing to that of the Eurosystem. In terms of article 17 of the Central Bank of Malta Act, the Central Bank of Malta is also responsible to provide financial support through its lender of last resort (LOLR) function to safeguard the stability of the banking sector. This function is normally resorted to in exceptional circumstances when there is a perceived threat to the stability of the financial system.

(v) Issue of Currency

Since its establishment in 1968, the Central Bank of Malta assumed the responsibility for the issue and control of currency notes and coins in Malta. The first series of Maltese currency notes was issued by the Central Bank of Malta in September 1969. Throughout

these years the Central Bank of Malta issued various series of notes with the latest series, the fifth, being issued in September 1989. On 16 May 1972, the Central Bank of Malta issued its first series of decimal coinage. Prior to this date Malta still used British coins. The first Maltese decimal coins consisted of the 50 cent, 10 cent, 5 cent, 2 cent, 1 cent, 5 mils, 3 mils and 2 mil coins. Subsequently the 25 cent coin and the Lm1 coin were introduced. With the introduction of the euro in Malta on 1 January 2008, the Central Bank of Malta became responsible for the issuance of euro banknotes in accordance with the principles and rules established within the Eurosystem. With the approval of the Eurosystem, the Bank issues euro banknotes in Malta and is responsible for ensuring the quality and authenticity of the banknotes in circulation. The Bank houses a Currency Surveillance Unit which analyses every banknote that is suspected to be counterfeit. Care is taken to ensure that the denominations in circulation reflect demand. Notes that are unfit for circulation are regularly withdrawn and destroyed, and replaced with new notes. The Central Bank of Malta also issues euro coins in Malta on behalf of the Government of Malta. The volume of euro coins issued is subject to prior approval by the European Central Bank in terms of Article 128 of the Treaty on the Functioning of the European Union.
Relations with International Institutions

The Central Bank of Malta is a member of the European System of Central Banks (ESCB) and the Eurosystem and actively participates in their decisionmaking bodies. The Bank also participates in a number of institutions of the European Union (EU). These include the Economic and Financial Committee (EFC) and the Committee for Monetary, Financial and Balance of Payments Statistics (CMFB). The EFC advises the Council of the EU on economic and financial matters. The CMFB advises the European Commission on statistical issues. The Governor also attends the informal meetings of the ECOFIN Council. Together with the Ministry of Finance, the Economy and Investment, the Bank also maintain relations with international economic and financial institutions of which Malta is a member. These institutions include the International Monetary Fund (IMF), the World Bank (IBRD) and the European Bank for Reconstruction and Development (EBRD). The IMF maintains close links with the monetary authorities in member states in order to ensure a stable international monetary and exchange rate system. The close relationship between the Bank and the IMF stems from statutory obligations assumed when Malta joined the Fund in 1968. The Bank is responsible for conducting all Malta's financial transactions with the Fund.
Economic Analysis and Research

In order to fulfil its national and international obligations, the Central Bank of Malta compiles and publishes a wide variety of economic, financial and monetary statistics. The Bank also collects certain statistical information directly from the competent national authorities. These statistics are essential for good economic governance and are used for economic analysis and research within the Bank and in the Eurosystem. The Bank conducts economic analysis and research to support the Governors participation in the Governing Council of the ECB. The Central Bank of Malta publishes its analysis in two main publications, namely, the Quarterly Review and the Annual Report. The Quarterly Review contains commentaries on economic and financial developments in Malta and abroad, occasional articles on economic and monetary matters, and economic and financial statistics. The Review also reproduces public statements by the Governor. On the other hand, the Annual Report contains an analysis of local and international economic and financial developments during the previous year. It also reports on the Bank's operations during the previous year and includes its annual financial statements. In addition, the Bank issues a monthly Release of Monetary Statistics. As from the reference month of January 2008, this focuses on the Maltese contribution to the euro area monetary aggregates and counterparts.

The Central Bank of Malta prepares forecasts of the main macroeconomic variables for the Maltese economy by means of its econometric model and other tools. These forecasts are also used in the forecasting exercises carried out by the Eurosystem Collecting, compiling, disseminating and publishing statistics The Central Bank of Malta collects and compiles a wide variety of monetary, financial and other macroeconomic statistics in accordance with European and other international standards. The Bank is empowered to carry out these functions by virtue of article 24 of the Central Bank of Malta Act (Cap. 204), as amended. Moreover, article 5 of the Statute of the European System of Central Banks (ESCB) and of the European Central Bank (ECB) confers upon the ECB the competence to collect, with the assistance of the national central banks, the statistical information necessary to perform the tasks of the ESCB, either from the competent national authorities or directly from economic agents. These statistics are essential for policy making, for the Bank to fulfil its national and international statistical obligations, and for economic analysis and research within the Bank and in the Eurosystem. Aggregated or consolidated statistics are released through the Bank's regular publications, its website, the publications of the ECB and other international organizations.

Promoting and supporting the development of financial markets and efficient payment and settlement systems A well structured payment and settlement system promotes the efficient use of resources and contributes to the integration of financial markets. The Central Bank of Malta operates a payment system, which forms part of TARGET2, and is known as TARGET2Malta. The Central Bank of Malta also oversees and regulates the operation of, and the participation in, both domestic and cross-border payment and securities settlement systems. Approval should first be authorized by the Bank before a payment and securities settlement system starts to operate. Furthermore, the Bank may also issue directives in respect of payment and securities settlement systems, cross-border credit transfer services and electronic payment services.

The Central Bank of Malta collaborates with local authorities and international institutions on matters of common interest. On a local level the Bank co-operates closely with the Ministry of Finance, the Economy and Investment, the Malta Financial Services Authority (MFSA) and the National Statistics Office (NSO), as well as with the Maltese banking and financial sector. Internationally, apart from being a member of the European System of Central Banks (ESCB) and the Eurosystem, the Bank maintains relations with international economic and

financial institutions of which Malta is a member. These institutions include the International Monetary Fund (IMF), the World Bank and the European Bank for Reconstruction and Development (EBRD). The Central Bank of Malta collaborates with local authorities and institutions on various matters of common interest, particularly where such collaboration is envisaged to contribute to financial sector stability, the smooth operation of payments and securities settlement systems and the collection of statistical and other information. In this context, the Bank has already entered into agreements with the Malta Financial Services Authority concerning the exchange of information and another concerning payments and securities settlement systems. The Bank has also entered into an agreement with the Statistics Office on the collection and compilation of statistics.
National

The Central Bank of Malta forms part of the European System of Central Banks (ESCB) and the Eurosystem. The ESCB is composed of the European Central Bank (ECB) and the national central banks (NCBs) of all European Union Member States, including those outside the Eurosystem. The latter term refers to the ECB and the NCBs of euro area Member States. As the central bank of a Member State which has adopted the euro, the Central Bank of Malta also forms part of the Eurosystem, the central banking system of the euro area.

The latter is composed of the ECB and the NCBs of the EU Member States that have adopted the euro. Apart from the ECB and the Central Bank of Malta, the Eurosystem also has as participants: Banque Nationale de Belgique, Deutsche Bundesbank, Eesti Pank, Central Bank of Ireland, Bank of Greece, Banco de Espaa, Banque de France, Banca d'Italia, Central Bank of Cyprus, Banque centrale du Luxembourg, De Nederlandsche Bank, Oesterreichische Nationalbank, Banco de Portugal, Banka Slovenije, Nrodn banka Slovenska, Suomen Pankki. The other members of the ESCB include: Bulgarian National Bank, esk Nrodn banka, Danmarks Nationalbank, Latvijas Banka, Lietuvos bankas, Magyar Nemzeti Bank, Narodowy Bank Polski, Banca Naional a Romniei, Sveriges Riksbank, Bank of England, Hrvatska Narodna Banka. The Governor has been a member of the General Council of the ECB since 1 May 2004 and a member of the Governing Council since 1 January 2008. The Governor has also been a member of the European Systemic Risk Board (ESRB) since its establishment on 1 January 2011. The Governor and Deputy Governor are respectively, the Governor and Alternate Governor for Malta on the International Monetary Fund (IMF). The IMF maintains close links with the monetary authorities in member states to fulfil its own obligations to ensure a stable international monetary and exchange rate system. The

close relationship between Central Bank of Malta and the IMF stems from statutory obligations assumed when Malta joined the Fund in 1968. It is responsible for conducting all Malta's financial transactions with the Fund. The Governor is also Alternate Governor for Malta at the European Bank for Reconstruction and Development (EBRD) and attends the Annual General Meeting of the Bank for International Settlements (BIS) in an observer capacity. The Bank regularly monitors developments within all these institutions and co-operates with such institutions in furthering the implementation of new initiatives falling within their mandate, particularly those related to international monetary and financial stability and economic development. The Bank also advises the Ministry for Finance on selected issues arising from Maltas membership in the International Bank for Reconstruction and Development (IBRD) and in the Multilateral Investment Guarantee Agency (MIGA), which are institutions of the World Bank Group. The Central Bank of Malta and the Malta Financial Services Authority (MFSA) are signatories to two memoranda of understanding between the ECB, the NCBs and the supervisory authorities of the ESCB: the 2003 Memorandum of Understanding on the High Level Principles of Cooperation between the Banking Supervisors and Central Banks of the EU in Crisis Management Situations', and the 2001 Memorandum of Understanding on Co-operation between Payment

Systems Overseers and Banking Supervisors in Stage Three of the Economic and Monetary Union. Furthermore, the Central Bank of Malta, together with the MFSA and the Ministry for Finance are signatories to the
2008 Memorandum of Understanding on Cooperation between the Financial Supervisory Authorities, Central Banks and Finance Ministries of the European Union on

to facilitate the management and resolution of cross-border systemic financial crises. The Central Bank of Malta participates in various committees of the EU and the ESCB. The Central Bank of Malta and the MFSA participate jointly on the European Banking Authority (EBA).
Cross-Border Financial Stability