Thomas Jefferson believed that the US Constitution should be rewritten every 20 years or so at a new constitutional convention.7 Second, we cannot fully describe an optimal monetary arrangement because we do not know all possible states of the world and hence the policy rule to which we would like to commit. Those two aspects of the technology of collective decisions create a role for institutions. But they differ in important ways. If there were only a commitment problem, then we could describe an optimal state-contingent monetary policy reaction function. Mechanisms could then be devised to make it less likely that policy would deviate from this optimal plan - perhaps by writing the optimal rule in the form of a constitutional provision which could be overturned only by a substantial majority, or financing deficits by issuing index-linked debt. Such mechanisms would make it incentive compatible collectively to stick to the optimal plan. None of this would have come as a surprise to the authors of the American Constitution. In Federalist Paper No.10 James Madison points out that “our governments are too unstable” (p173) and in No. 37 he writes: “the people of this country, enlightened as they are with regard to the nature ... of good government, will never be satisfied till some remedy be applied to the vicissitudes and uncertainties which characterise the State administrations” (p243). Outside observers agreed.
Ladies and Gentlemen, in recognition of the need to provide a conducive regulatory environment which promotes sustainability, accountability, transparency and growth of the building society industry in Zambia, the Building Societies Act was amended in October 2005 to harmonise it with the Banking and Financial Services Act pending the modernization of the Building Societies Act under the Financial Sector Development Plan law reform programme. Ladies and Gentlemen, Bank of Zambia is concerned about the levels of lending interest rates charged by most financial institutions in Zambia, building societies included. With the achievement of relative macroeconomic stability in the recent years as evidenced by a significant reduction in the inflation rate to 11.1 percent as at June 2007, it is the expectation of the Bank of Zambia that all prudent lending institutions would make downward adjustments to their lending interest rates to make financial services accessible and affordable. It is also important to note that high lending interest rates can lead to high levels of delinquency. Ladies and Gentlemen, it is in this light that we anticipate that credit referencing services will help in reducing credit risk through the provision of widely accessible information on the loan repayment profile of borrowers. This should also provide another incentive for lowering of interest rates. Ladies and Gentlemen, in conclusion I wish to state that the Bank of Zambia is committed to broadening and deepening the financial sector through effective implementation of the Financial Sector Development Plan.