Given the undeveloped nature of Zambia’s financial system, it is evident that the diversification and strengthening of financial institutions, instruments and markets must be regarded as a prerequisite to further economic development. In this regard, the  10  BIS Review 99/2008  Government approved the Financial Sector Development Plan provides a framework for focused development of the financial system. Bearing the foregoing, the BoZ continue to closely monitor the financial condition and performance of the financial sector. References 1. FinMark Trust (2005). Measuring Financial Access in Zambia: Summary of Topline Findings, FinScope™(2005) Survey. 2. GRZ (2004). Financial Sector Development Plan for Zambia. 3. Honohan P., and T. Beck (20070. Making Finance Work for Africa. World Bank, Washington DC. 4. Jefferies. K. Enhancing Access to Banking and Financial Services in Botswana. Appendix I containing contact details of banking and other institutions in Zambia can be found on Bank of Zambia’s website www.boz.zm. BIS Review 99/2008  11
In these conditions, foreign exchange swap markets can speedily be used to convert liquidity from one currency to another at spreads that closely reflect the differences in domestic money market rates in the two countries concerned. But as we saw so clearly in 2008, this mechanism has a tendency to break down in a time of a financial crisis – precisely when it is most needed. Central banks can lend out their foreign exchange reserves, of course, but there is a well-known limit to that process. Some form of global liquidity provision is therefore needed. The swap lines granted during this crisis were precisely that, and most studies seem to support the conclusion that they made the crucial difference in relieving strains in banks’ foreign exchange funding. To a significant degree, this was the domestic LOLR process replicated at the international level. We have a solution, then, at least at the conceptual level. But it is not clear that it is a robust solution in practise. The swap lines are not at present a permanent and a reliable feature of the international monetary system; for instance, they have been strongly challenged in political discussion in the US. Furthermore, there are important unresolved governance issues, such as who should decide which countries get a swap line and which do not. It is thus an important item on the reform agenda to clarify the extent to which standing foreign currency LOLR facilities for solvent cross-border banks can be set up without going through national governments.