Overcoming Genocide & Financial Crises w/ BNR Governor John Rwangombwa | THE LONG FORM

Yeah, thank you. Thanks for having me. In simple language, normally a central bank has two main mandates: one is price stability and financial sector stability. I'll try to use simple language to see how the young ones can understand. So for a country to grow or people to have a good life, there's what we call the economy. The economy is the actions, the businesses, what we own for our survival, for our well-being. People invest money to grow in a sustainable way. There has to be a base on which it is built, which we call economic stability. This economic stability is normally measured by the movement of prices of goods and services in a country. So what we are responsible to do as a central bank, point number one, is to ensure that there's no excessive volatility in the prices of goods and services in a country. That is what we call price stability, and that is the responsibility of the central bank. With that price stability, people will feel comfortable to invest in your economy and generate more value and more wealth and create jobs and help the economy to grow. So that's our primary mandate: to ensure that there's price stability in our economy as a country. Going into the details of what we use to ensure that is something we can come back to later. Then there's the question of financial sector stability. Again, for an economy to grow, for a country to survive, you need to have financial institutions that support the economy to function. Because you need to use that money to save and invest in the future, or you need to, when you have a good project, you need to be able to borrow and invest in this project and be able to pay. So for people to be able to do that, they need a financial sector where they can trust that when I put my money into this bank, I'll get it whenever I need it. I won't just lose it. When I put money in this bank, they will build a relationship. This bank will be able to lend me when I need to invest to do a bigger project. So we have a responsibility to ensure that people trust the financial sector and the stability of the financial sector, to ensure that there won't be banks crashing tomorrow and people lose money. So those are our main mandates as a central bank. But we have many other roles because we are the bank of the government. Government institutions bank their money with us, and we facilitate their transactions, paying here and there. Any financial transaction of the government is handled by the bank. Also, these big interbank transactions: you don't have to go pick money from Bank X and come pay me, then I go to my bank. You just give instructions to your bank to pay so-and-so in Bank X. Those transactions happen during the day, and at the end of the day, banks transact between themselves to net out these movements of payments of their customers. We act as their clearing house, as their center for these interbank transactions that link them. But we also manage shocks of any kind going forward, mainly foreign reserves. So we also manage the exchange market, where the local currency is exchanged with foreign currency. There are many other things, but those are the main ones I can explain for now.

In 2014, we sat at the leadership of the National Bank of Rwanda. At that time, we were revising our strategic plan, and we said, borrowing from our country, when we started rebuilding this economy, the country gave itself a vision which we called Vision 2020: we aim to be at this level in the year 2020. And we thought, what kind of vision should we give ourselves that should be ambitious? We have a lot that can be improved, but we want to be the best of what we can be as an institution to serve this economy. So that's when we said a vision of being a world-class central bank. That is a central bank that has staff trained with a culture at world standards, at global standards. A central banker from the National Bank of Rwanda engaging their colleagues in a global setup should be able to fit in. It also means having standards in terms of using technology and remaining agile, following up with technology as it evolves to take advantage of technological development globally. Our regulatory regime as a regulator of financial institutions should be at that level in terms of service delivery, culture, and the capacity of our staff. The simple word is to say, when you compare people, they always say this guy is analog, this one is digital. So world-class is to be at the best of what is possible in this world as a central bank.

The most important asset of a central bank is credibility. So if you issue a statement that is not based on facts, and tomorrow the economy goes up or down, then you lose credibility. The economy will be in shambles. So that's why we have a big responsibility to understand well what is happening before you make a statement. In fact, these days we are more vocal than before. Originally, in the last 10 to 15 years, central bankers would not communicate with the media. But today we communicate a lot because you want the economic actors—consumers, traders, investors—to understand what is happening in the economy. For them to take informed decisions, otherwise there will be speculative decisions that can hurt the economy. So we do a lot of communication today to allow people to understand what is happening and help them take informed decisions. So it's not power; it's if anything, it's a big responsibility central banks have. And yes, I agree with you, any statement made by central bankers has an impact on the economy.

One is to understand the responsibility of a central banker, to understand the weight of the decisions you take, to remain data-driven and fact-based in your decision-making, and most importantly, to be independent in your decisions, with no subjectivity of any kind. So it's knowledge, data, objectivity, and firmness.

As I said, we use a lot of data in our decision-making, and we have models that help us for analytics of this data. Normally, the models show us the trends and what should be the decisions, the direction of the decisions. But as people that are dealing with these things every day, you apply what we call human judgment. So this is what we see, this is what the models are giving us, but human judgment is normal in what you do. The other thing is that normally in economics, we use assumptions. That's why I say it's a social science; it's not like technology or biology. So your assumptions determine the direction of the actions you take. So you need to understand your economy quite well to have the right assumptions that you're putting into your model, which influences your decisions. You need to have some good understanding of the behavior of your economic actors. We do a lot of surveys and research to understand what is happening.

We are just building it now. We have a data science team that we set up two years ago, and we are now putting up a framework through which we can use artificial intelligence to support our decision-making. So it's a process we just started.

It will make analytics much easier and maybe more accurate. But at the end of the day, you need people that are beyond the machine, that can relate what they see from the machines to the real life we live, to the life that people live. So there's no way you can replace the human capital with just artificial intelligence. It will make it easier, yes, but you still need researchers.

This 'build, build, build' is sustainable. Build doesn't mean to just build in a haphazard way. That's why there is a central bank. The national directional building is built on the understanding that there's stability within this economy for whatever we're building to be sustainable. The responsibility of the central bank is to create that sustainability. So in an inflationary period, you have to slow down the building to allow cooling down of the prices. If you don't do that, the value of money will be eroded, and the cost of prolonged inflation to the economy is much bigger than a short period where we require people to be disciplined and spend less and invest less, allow things to cool down. So it is in line with the push to build. It's not against building; it's just creating a stable environment that allows sustainable building.

I'm very happy you asked that question. The genocidal forces didn't just kill people; they crushed the economy to zero, to negative. I always say we were thrown into a very deep ditch. So in the first six months of 1994, there were not much economic activities anywhere. The country was just trying to find its footing. It was survival. Nobody would really complain that you're not paying me salary because we were all busy trying to find a footing. By the end of the year, of course, there was little money that the RPF had, which was used to do some government activities. I remember the borders were opened in August 1994. The government was formed on July 19, and by the end of August, borders were working. So we had to demonetize the old banknotes as legal tender for the country. One reason was to avail the money necessary for economic activities, but also the genocidal forces that had looted the country were using this money to mobilize against the government to come back and complete their evil plan. So what had to be done was to make that money useless. That money lost legal tender in January 1995. That helped, but also that's when we really started having money printed by the new government.

That's not just to the central bank; that was a common phenomenon across the country. The government had ministers and heads of different institutions that had never headed any institution before. So it was learning on the job. For the central bank, we had the first central bank governor who was working with the central bank of Burundi, so he had that knowledge, and a few others. But what was important was the spirit of wanting things to happen. People were learning by doing. We had support from development partners that came in to train our people. We immediately established opportunities for people to go for training. Some partners were channels through UNDP because they thought we couldn't manage these resources. But with this urge to learn quickly, to make things happen quickly, and with a clear vision of what we want to achieve, we opened up the economy. Specialized institutions were set up that we didn't have before, like the Rwanda Revenue Authority, the Auditor General, the National Tender Board. All those were set up in the late 90s to strengthen the system.

Two main ones. Has it always been smooth sailing since '94? There can never be smooth sailing in building a country. There are always challenges, but that's why institutions are there, and that's why people are there to deal with the challenges. What you've highlighted are the peak of the challenges. The other peak we had was in 2012. What happened in 2012? We had our partners suspending the money they were giving us because of M23. So that was also a blip in our journey. There might be challenges here and there, but at the end of the day, we maintain the focus.

Again, it's to say the shock won't happen again because I would want to say that the shock was exogenous. What does that mean? It was decided by the partners. We can't do much. Even tomorrow, they can wake up and decide to suspend their disbursement. So what we learned—or not even learning, even before that, our president always pushes us to be ready to be self-sustaining, to be ready to face such challenges. So when it happened, it was a wake-up call to say, 'Let's not rely on their money.' Because even then, it was suspended based on their perceptions. Today might have the same thing; tomorrow they might be happy. Take an example: our neighbors' money has been suspended because of a law that was passed. So there are things that you don't control. What is important is we build yourselves to adjust when such shock happens. That's what we did that time, adjusting in terms of spending on the budget. We had to prioritize what was necessary because of the reduced disbursement. It's not only those shocks; we also had COVID-19, which was a big shock. So we are ready to stand and weather that kind of shock. That's what I can say: by maintaining good reserves for our country, but also being flexible in our fiscal policy, so if that happens, we need to prioritize what kind of spending we have to do.

We have a currency center. That is the center of our banknotes and coins. It's from there that banks withdraw and deposit. Banks also have their own vaults. So yes, we are the center; we supply the money that is being used. We ensure good quality. When it's old, they bring it back to us, we burn it, and when it's getting less in circulation, we print more money. So we do that. There's not like a room where you can go down and open a vault and everything is there. We have a vault, but it's not like Fort Knox. For foreign reserves, we don't keep a lot of dollar cash in dollars. We normally do transfers between banks. So it's only our domestic currency that we keep, and we give it to banks, and banks give it to the public.

What's important is the global financial system. This foreign currency, we use it for investing in foreign assets, but we also use it for international transactions. The global financial system is where these transactions are. So if you want to pay to a Saudi or Chinese or wherever, you just order your correspondent bank to transfer the money using the corresponding systems. It's unfortunate that what we saw with what happened with Russia is an abuse of this foreign financial system. But it won't stop it from being the way it is. What countries are doing today is to try and get alternative channels. It's a process, a long process. On the African continent, we are trying to do that using a Pan-African payment system. Even before we are able to transact using our own currency through the system, even the transfers using hard currency could be done using our own financial institutions without having to go through correspondent banks and having to go through one channel called SWIFT. So there's a push to create alternative channels. But for now, it's just to fight with the powerful West not to abuse the existing system.

It's already formed. It's the African Export-Import Bank that is the promoter of this system. We just signed ourselves in with them last year. So it's still fine-tuning the operational system of this payment system. Let's not talk about domestic currencies yet. Even with the dollars today, with the way the global financial system is set, if for example Rwandan companies are buying $100 million worth of goods from Kenya, they have to mobilize $100 million and send it to Kenya. And assume Kenyans are buying $50 million worth of goods from Rwanda, they have to mobilize $50 million and send it to Rwanda. So that is cash mobilized, and there are costs associated with that. What this system is supposed to do is you don't have to mobilize the $100 million. Instead of mobilizing $100 million that will have idle money there until it is balanced off by money coming from Kenya, this will be done by this switch. So in a way, it reduces the cost. But the ultimate goal going forward is to use our domestic currencies. So if, like the example I've given, the $50 million that is equivalent in our goods can be settled between using our currencies. The balance that is above our domestic is what we can mobilize in hard currency. So that makes it easier in terms of our reserves.

I think it's a process. We are discussing it within our own central bank meetings, and we are working with Afreximbank to streamline any challenges that are there. So yes, we are all engaged and committed to have it happen.

I wish. Today we have a plan to have an East African Monetary Union by 2031. That's very soon, seven years from now. Practically, there are two challenges here and there because we don't have an economic union yet. So I hope it will happen.

I expect to see a lot of changes in the next 10 years. For the central bank, we've just approved a digital transformation strategy that transforms the bank in terms of technology, simplifying our processes and digitizing everything. We are already working on a central bank digital currency, similar to Bitcoin. So I'm looking at a situation where in the next 10 years, financial flows globally will be much easier, seamless, and less costly. We are positioning ourselves as a central bank to be a catalyst in our economy to enable that. Will we still have paper currency? Maybe. It's not something that we expect to go away just like that. But take an example of Sweden: today almost 95% of their transactions are online, but they still have cash. People are still using cash. So I expect to see more transactions in electronic form than cash form, but cash will not go away in the next 10 years.

If I could talk to the John of 1994, one thing is that we had at that time trust and confidence that things will be better. Where did that come from? I had an opportunity that I participated in the liberation struggle. It was more difficult then than even in '94-'95 because we were a small organization fighting a big nation with a lot of support from outside. But the commitment and the determination to succeed were there. So in '94, I was focused on what I was doing as a customs officer and trying to do it to the best of my knowledge. I wouldn't really want to think of what will happen in 30 years then. But what can I do today that makes a difference? Because we were in a crisis, trying to put our feet down. So I think we were all involved in trying to stabilize and get back to normal. That took us some time. But by the end of the decade, we could sit and plan for 20 years ahead. I'm happy that we are where we are today. And I am also happy that you joined me this week. Thank you again.

Thank you so much. I think it's really good that we are celebrating 60 years as a bank, but most importantly, we are celebrating 30 years of liberation as a country. So it's good timing for the bank to be celebrating together with the country. Yes, thank you. All the best.