A Study of the Post World War Two Developments in Money, Banking and Finance of Fiji

Abstract

This is a study of the development of money, banking and finance of Fiji in the Post World War II period. Fiji, a South Pacific Island Nation of 720,000 people and spread over 300 islands, became independent in 1970 after being a colony of Great Britain since 1874. Prior to 1914 there was no organised monetary system in Fiji. Currencies of various countries were in circulation. Commercial banking services were provided on a very limited basis by the Bank of New Zealand and the Bank of New South Wales (now Westpac Banking Corporation). The formation of a Currency Board in 1914 brought about a great deal of improvement to the monetary system of Fiji. This, plus a stable system of colonial adminisitration induced a good deal of confidence of the traders and the a local population in the banking system as against a somewhat chaotic monetary situation prior to 1914. In the period 1914 - 1950 the stock of money increased far more rapidly than to the period before. There was some increase in the number of bank branch operations, but not that significant. It was the post-World War II period that saw a major growth in money, banking and finance. Few more foreign banks opened branches in Fiji. Two non-bank financial institutions, one a development bank and the other a provident fund, were set up. Growth in the insurance industry was noticeable. Diversification of the economy from a single major export item of sugar to tourism and other agricultural and manufacturing based industries provided the impetus to this growth. Except for the development bank and the provident fund the banking system and the insurance industry was predominantly foreign owned. With the advent of political independence in 1970 the Fiji Government brought in various institutional and legislative changes to the monetary and financial spheres with an aim towards greater financial independence and economic development. The Currency Board System of monetary management was replaced by a monetary authority in 1970. Subsequently the monetary authority was upgraded to a central bank in 1984. New banking and insurance legislations were introduced along with various amendments to the legislations of other financial institutions with the aim to consolidate and streamline their activities to better suit the development needs of Fiji. This adaptation of financial institutions which evolved in circumstances different to that in Fiji and the efforts to indigenise the financial institutions in a system predominantly dependent on foreign financial institutions has been a challenging experience for the policy makers and practitioners in the financial sector. After a comprehensive review of the developments in commercial banking, central banking and,money and capital market, this study concludes that the financial system in Fiji is facing a highly controlled environment. The banking system operates within tight regulations of the Reserve Bank. Monetary control is largely operated through the commercial banks by the use of various types of ratios. Interest rates are administratively set. The non-bank financial institutions are largely government-owned or controlled. As such the portfolios are managed within broad government guidelines. So is the insurance industry. This controlled environment is partly responsible for a stunted growth in the money and capital market in Fiji.